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Estimating the DCF Growth Rate Suppose Hornsby Ltd just issued a dividend of $165 per share on its common stock The company paid dividends

Estimating the DCF Growth Rate. Suppose Hornsby Ltd. just issued a dividend of $1.65 per share on its common stock. The company paid dividends of $1.24, $1.33, $1.44, and $1.53 per share in the last four years. If the stock currently sells for $55, what is your best estimate of the company's cost of equity capital using arithmetic and geometric growth rates? Calculating cost of Preferred stock. Sixth Fourth Bank has an issue or preferred stock with a $4.20 stated dividend that just sold for $93 per share. What is the bank's cost of preferred stock? Calculating cost of Debt. ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with seven years to maturity that is quoted at 96 percent of face value. The issue makes semiannual payments and has an embedded cost of 4.9 percent annually. What is the company's pretax cost of debt? If the tax rate is 38 percent, what is the aftertax cost of debt? Calculating cost of Debt. Jiminy's Cricket Farm issued a 30-year, 6.3 percent semiannual bond 8 years ago. The bond currently sells for 107 percent of its face value. The company's tax rate is 35 percent. a. What is the pretax cost of debt? What is the aftertax cost of debt? c. Which is more relevant, the pretax or the aftertax cost of debt? Why? Calculating cost of Debt. For the firm in Problem 7, suppose the book value of the debt issue is $145 million. In addition, the company has a second debt issue, a zero coupon bond with 9 years left to maturity; the book value of this issue is $75 million, and it sells for 67.4 percent of par. What is the total book value of debt? The total market value? What is the aftertax cost of debt now? Bargeron Corporation has a target capital structure of 75 percent common stock, 5 percent preferred stock, and 20 percent dept. It's the cost of equity is 10.9 percent, the cost of preferred stock is 5.1 percent, and the pretax cost of dept is 5.8 percent. The relevant tax rate is 35 percent. a. What is the company's WACC? b. The company president has approach you about the company's capital structure. He wants why the company doesn't use more preferred stock financing, since it costs less than dept. What would you tell the president?

 

Apr 08 2020 View more View Less

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