Assignment
1. After-Tax Cost of Debt
LL Incorporated's currently outstanding 119h coupon bonds have a yield to maturity of 8%. LL believes it could issue new bonds at par that would pro-vide a similar yield to maturity. If its marginal tax rate is 35%, what is after-tax cost of debt?
2. Cost of Equity: CAM
Booher Book Stores has a beta of 0.8. The yield on a 3-month T-bill is 4%, and the yield on a 10-year T-bond is 6%. The market risk premium is 5.5%, and the return on an average stock in the market last year was 15%. What is the estimated cost of common equity using the CAM?
3. Cost of Equity
Radon Homes' current EPS is $6.50. It was $4.42 5 years ago. The company pays out 40% of its earnings as dividends, and the stock sells for $36.
a. Calculate the historical growth rate in earwigs.
b. Calculate the net expected dividend per share, D1. Assume that the past growth rate will continue.
c. What is Radon's cost of equity, rs?
4. The Cost of Equity and Flotation Cost
kessman Manufacturing will issue common stock to the public for $30. The expected dividend and the growth in dividends are $3.00 per share and 5%, respectively. If the flotation cost is 10% of the issue's gross proceeds, what is the cost of external equity, re?