1. A firm is considering a project that will generate perpetual after-tax cash flows of $10,000 per year beginning next year. The project has the same risk as the firm's overall operations and must be financed externally. Equity costs 20% and debt issues cost 6% on an after-tax basis. The firm's D/E ratio is 0.9. What is the project's required return?
2. Suppose that Beach Blanket's common shares sell for $65 per share, are expected to set their next annual dividend at $3.00 per share,
and that all future dividends are expected to grow by 8 percent per year, indefinitely. If Beach faces a flotation cost of 11% on new equity issues, what will be the flotation-adjusted cost of equity?
3. A firm has 4,000,000 shares of common stock outstanding, each with a market price of $13.00 per share. It has 35,000 bonds outstanding, each selling for $780. The bonds mature in 18.5 years, have a coupon rate of 8%, and pay coupons semi-annually. The firm's equity has a beta of 1.5, and the expected market return is 15%. The tax rate is 30% and the WACC is 15%. What is the risk free rate?
4. LMN Industries has 4 million shares of stock outstanding selling at $17 per share and an issue of $16 million in 7 percent, annual coupon bonds with a maturity of 30 years, selling at 114 percent of par. If LMN's weighted average tax rate is 35 percent and its cost of equity is 15 percent, what is LMN's WACC?
5. The table below shows your stock positions at the beginning of the year, the dividends that each stock paid during the year, and the stock prices a the end of the year. What is your portfolio percentage return?
|
Company
|
shares
|
beginning of year price
|
dividend per share
|
end of year price
|
|
W
|
500
|
$5.00
|
$0.50
|
$4.0
|
|
P
|
100
|
$15.00
|
$1.00
|
$15.25
|
|
J
|
200
|
$25.00
|
|
$22.00
|
|
D
|
200
|
$30.00
|
$2.00
|
$33.50
|