Growth Company\'s current share price is $20.00 and it is expected to pay a $0.9
ID: 2647666 • Letter: G
Question
Growth Company's current share price is $20.00 and it is expected to pay a $0.90 dividend per share next year. After that, the firm's dividends are expected to grow at a rate of 3.5% per year. What is an estimate of Growth Company's cost of equity? Growth Company also has preferred stock outstanding that pays a $ 1.90 per share fixed dividend. If this stock is currently priced at $28.15, what is Growth Company's cost of preferred stock? Growth Company has existing debt issued three years ago with a coupon rate of 6.4%. The firm just issued new debt at par with a coupon rate of 6.5% What is Growth Company's cost of debt? Growth Company has 4.8 million common shares outstanding and 1.4 million preferred shares outstanding, and its equity has a total book value of $50.0 million. Its liabilities have a market value of $19.9 million. If Growth Company's common and preferred shares are priced as in parts (a) and (b), what is the market value of Growth Company's assets? Growth Company faces a 35% tax rate. Given the information in parts (a) through (d). and your answers to those problems, what is Growth Company 's WACC? What is an estimate of Grow the Company's cost of equity? The required return (cost of capital) of levered equity is %. (Round to two decimal places.) Growth Company also has preferred stock outstanding that pays a $ 1.90 per share fixed dividend. If this stock is currently priced at $28. 15. what is Growth Company's cost of preferred stock? The cost of capital for preferred stock is )%. (Round to two decimal places.) Growth Company has existing debt issued three years ago with a coupon rate of 64%. The firm just issued new debt at par with a coupon rate of 6.5% What is Growth Company's cost of debt? (Select from the drop-down menus.) The pre-tax cost of debt is the firm's YTM on current debt. Since the firm recently issued debt at par, then equal to greater than less than the coupon rate of that debt must be the YTM of the debt. Thus, the pre-tax cost of debt is 64% 6.5% Growth Company has 4.8 million common shares outstanding and 1.4 million preferred shares outstanding, and its equity has a total book value of $50.0 million. Its liabilities have a market value of $ 19.9 million. If Growth Company's common and preferred shares are priced as in parts (a) and (b), what is the market value of Growth Company 's assets? The market value of assets is $ million. (Round to two decimal places.)Explanation / Answer
a) Cost of Equity = Expected Dividend/Share Price + Growth rate
Cost of Equity = 0.90/20 + 3.50%
Cost of Equity = 8%
b) Cost of Prefered Stock = 1.90/28.15
Cost of Prefered Stock = 6.75%
c) Equal to , 6.50%
d) Market Value of Equity = 20*4.8 = $ 96 Million
Market Value of Prefered Stock = 28.15*1.40 = $ 39.41 Million
Market value of Liabilty = $ 19.90 Million
Market Value of Total Asset = $ 155.31 Million
Answer
Market Value of Total Asset = $ 155.31 Million
e) WACC = Weight of Equity*Cost of Equity + Weight of Prefered Stock*Cost of Prefered Stock + Weight of Debt*Aftertax cost of Debt
WACC = 96/155.31 * 8 + 39.41/155.31*6.75 + 19.90/155.31*6.50*(1-35%)
WACC = 7.20%
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