Please help me answer these questions. Thank you. A company has 10 million share
ID: 2636308 • Letter: P
Question
Please help me answer these questions. Thank you.
A company has 10 million shares outstanding trading for $7 per share. It also has $300 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 9%, and its effective corporate tax rate is 40%, what is its weighted average cost of capital?
A company has the opportunity to do any of the projects for which the net cash flows per year are shown below. The company has a cost of capital of 12%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work.
A stock has just paid a dividend and has declared an annual dividend of $2.00 to be paid one year from today. The dividend is not expected to grow. The return on equity for similar stocks is 12%. What is P0?
A stock has just paid a dividend and has declared an annual dividend of $2.00 to be paid one year from today. The dividend is expected to grow at a 5% annual rate. The return on equity for similar stocks is 12%. What is P0?
Year A B C 0 -350 -250 -250 1 100 -50 100 2 100 100 100 3 100 100 100 4 100 100 100 5 100 100 100 6 50 100 100 7 -200 -200 0Explanation / Answer
A company has 10 million shares outstanding trading for $7 per share. It also has $300 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 9%, and its effective corporate tax rate is 40%, what is its weighted average cost of capital?
amount of capital= 10mx7= 70m
amount of debt= 300m
total capital= 300m+70m= 370m
weighted average cost of capital= (wt of equityxcost of equity)+(wt of debtxcost of debtx(1-tax))
weighted average cost of capital= (70/370x15)+(300/370x9x.6)= 7.216% or 7.22%
A company has the opportunity to do any of the projects for which the net cash flows per year are shown below. The company has a cost of capital of 12%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work.
NPV of A= -350+(100/1.12)+(100/1.12^2)+(100/1.12^3)+(100/1.12^4)+(100/1.12^5)+(50/1.12^6)-(200/1.12^7) = -$54.66
NPV of B= -250-(50/1.12)+(100/1.12^2)+(100/1.12^3)+(100/1.12^4)+(100/1.12^5)+(100/1.12^6)-(200/1.12^7) =-$88.59
NPV of C= -250+(100/1.12)+(100/1.12^2)+(100/1.12^3)+(100/1.12^4)+(100/1.12^5)+(100/1.12^6)= $161.141
Since the NPV of project C is positive we will choose project C
A stock has just paid a dividend and has declared an annual dividend of $2.00 to be paid one year from today. The dividend is not expected to grow. The return on equity for similar stocks is 12%. What is P0?
P0= D1/(Ke-g)
P0= 2/(.12-0)= $16.67
A stock has just paid a dividend and has declared an annual dividend of $2.00 to be paid one year from today. The dividend is expected to grow at a 5% annual rate. The return on equity for similar stocks is 12%. What is P0?
P0= D1/(Ke-g)
P0= 2/(.12-.05)= $28.57
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