Mutton Motors wants to build a new factory. They know the cost to build the factory and have forecasted the future cash flows from the plant. They want to do an NPV analysis but are not sure what rate to use. They come to you as a consultant to figure out their cost of capital.
The information they have given you is:
They just paid a dividend of $2.75. Their dividend growth rate is 4.8%. Their current stock price is $32.00, and they have 1,808,000 shares outstanding.
They also have a beta of 1.16, the risk free rate is 3.01%, and the market risk premium is 5.24%.
They have 11,000 bonds outstanding with a coupon rate of 4.5%, 14 years to maturity, a face value of $1000 and a market price of $1,100. They are semiannual bonds.
Their corporate tax rate is 21%.
What is the debt to equity ratio?
What is the cost of equity?
What is the cost of debt?
What is the tax effected cost of debt?
What is the WACC?
Prego Corp. has a target capital structure of 30% debt, 60% common equity, and preferred stock of 10%. The yield to maturity on the company’s outstanding bonds is 9%, and its tax rate is 21%. The cost of preferred stock is 5%. Prego’s CFO estimates that the company’s WACC is 9.96%.
What is Prego’s cost of equity?
If the total capital structure is $90,000,000 and the debt to equity ratio is 50%, what is the dollar amount of debt?
Referencing problem 7, what is the dollar amount of equity?
Look up the beta for Tapestry, Inc. What is it and what does it mean?
If you had to calculate the cost of equity for Twitter, Inc. which way would you have to do it?
If a firm’s WACC is 8.00%, what does this mean to the firm?