[71] .Bartlett Company’s target capital structure is 40% debt, 15% preferred, and 45% common equity.

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[71].Bartlett Company’s  target capital structure is 40% debt, 15% preferred, and 45% common equity.  The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of common using retained earnings is 12.75%.  The firm will not be issuing any new stock.  You were hired as a consultant to help determine their cost of capital. What is its WACC?

 

a. 8.98%

b. 9.26%

c. 9.54%

d. 9.83%

e.10.12%

 

[72].Kenny Electric Company’s noncallable bonds were issued several years ago and now have 20 years to maturity.  These bonds have a 9.25% annual coupon, paid semiannually, sells at a price of $1,075, and has a par value of $1,000.  If the firm's tax rate is 40%, what is the component cost of debt for use in the WACC calculation?

 

a.4.35%

b.4.58%

c.4.83%

d.5.08%

e.5.33%

 

[73].The Lincoln Company sold a $1,000 par value, noncallable bond several years ago that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually.  The bond currently sells for $925 and the company’s tax rate is 40%.  What is the component cost of debt for use in the WACC calculation?

 

a.4.28%

b.4.46%

c.4.65%

d.4.83%

e.5.03%

 

[74].To help estimate its cost of common equity, Maxwell and Associates recently hired you.  You have obtained the following data:  D0 = $0.90; P0 = $27.50; and g = 7.00% (constant).  Based on the DCF approach, what is the cost of common from retained earnings?

 

a. 9.29%

b. 9.68%

c.10.08%

d.10.50%

e.10.92%

 

[75].As the assistant to the CFO of Johnstone Inc., you must estimate its cost of common equity.  You have been provided with the following data:  D0 = $0.80; P0 = $22.50; and g = 8.00% (constant).  Based on the DCF approach, what is the cost of common from retained earnings?

 

a.10.69%

b.11.25%

c.11.84%

d.12.43%

e.13.05%

 

[76].Trahern Baking Co. common stock sells for $32.50 per share. It expects to earn $3.50 per share during the current year, its expected dividend payout ratio is 65%, and its expected constant dividend growth rate is 6.0%.  New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred.  What would be the cost of equity from new common stock?

 

a.12.70%

b.13.37%

c.14.04%

d.14.74%

e.15.48%

 

[77].You are a finance intern at Chambers and Sons and they have asked you to help estimate the company’s cost of common equity.  You obtained the following data:  D1 = $1.25; P0 = $27.50; g = 5.00% (constant); and F = 6.00%.  What is the cost of equity raised by selling new common stock?

 

a. 9.06%

b. 9.44%

c. 9.84%

d.10.23%

e.10.64%

 

[78].You were recently hired by Garrett Design, Inc. to estimate its cost of common equity.  You obtained the following data:  D1 = $1.75; P0 = $42.50; g = 7.00% (constant); and F = 5.00%.  What is the cost of equity raised by selling new common stock?

 

a.10.77%

b.11.33%

c.11.90%

d.12.50%

e.13.12%

 

[79].Quinlan Enterprises stock trades for $52.50 per share. It is expected to pay a $2.50 dividend at year end (D1 = $2.50), and the dividend is expected to grow at a constant rate of 5.50% a year.  The before-tax cost of debt is 7.50%, and the tax rate is 40%.  The target capital structure consists of 45% debt and 55% common equity.  What is the company’s WACC if all the equity used is from retained earnings?

 

a.7.07%

b.7.36%

c.7.67%

d.7.98%

e.8.29%

 

[80].Avery Corporation’s  target capital structure is 35% debt, 10% preferred, and 55% common equity.  The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of common from retained earnings is 11.25%, and the tax rate is 40%.  The firm will not be issuing any new common stock.  What is Avery's WACC?

 

a.8.15%

b.8.48%

c.8.82%

d.9.17%

e.9.54%

 

 

 

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