To all finance tutors - I have a Corporate Finance final exam at 8pm Eastern, tonight. The test will consist of about 30 questions, and will be similar to the ones above, but will include more recent textbook concepts as well. I will be posting some sample problems below, and if you are capable of handling such problems, please contact me ASAP so we can lock in a deal. Let me reiterate, THESE ARE NOT THE QUESTIONS I NEED ASSISTANCE WITH. THESE ARE SAMPLE QUESTIONS, WHICH I AM INCLUDING TO ILLUSTRATE THE TYPES OF MATERIAL THIS EXAM COVERS. THE ACTUAL QUESTIONS WILL NOT BE ACCESSIBLE UNTIL 8PM EASTERN TIME. I WILL HAVE TO SUBMIT THE QUESTIONS TO YOU AS THEY APPEAR, ONE BY ONE. AFTER EACH QUESTION IS ANSWERED, THE NEXT ANSWER WILL BE DISPLAYED AND I WILL SUBMIT IT TO YOU.:
1.) A firm has paid dividends of $1.02, $1.10, $1.25, and $1.35 over the past 4 years, respectively. What is the average dividend growth rate?
2.)A semiannual, 7 percent bond matures in 14 years and has a face value of $1,000. The market quote on this bond is 101.4. What is the aftertax cost of debt if the tax rate is 35 percent?
3.)Why is the tax rate applied to the cost of debt but not to the cost of equity or preferred stock when computing a finn's weighted average cost of capital?
4.)What approach to a project's costs of capital entails the use of another finn's cost of capital rather than the use of your own finn's cost of capital?
What is the flotation cost of equity for a finn that generates sufficient internal cash flows to cover the equity portion of any capital expenditure?
5.)Calculating the Cost of Equity Suppose stock in Watta Corporation has a beta of .80. The market risk premium is 6 percent, and the risk-free rate is 6 percent. Watta's last dividend was $1.20 per share, and the dividend is expected to grow at 8 percent indefinitely. The stock currently sells for $45 per share. What is Watta's cost of equity capital?
6.)Calculating the WACC In addition to the information given in the previous problem, suppose Watta has a target debt-equity ratio of 50 percent. Its cost of debt is 9 percent before taxes. If the tax rate is 35 percent, what is the WACC?
7.)Flotation Costs Suppose in the previous problem Watta is seeking $30 million for a new project. The necessary funds will have to be raised externally. Watta's flotation costs for selling debt and equity are 2 percent and 16 percent, respectively. If
flotation costs are considered, what is the true cost of the new project?