Note: For each non-excel question, you must provide your source in the proper APA format.
Reminder: If you DO NOT have a formula within your answer cell, it will not be marked correct! You must show your work within the excel formula!
1. [EXCEL] Finance balance sheet: KneeMan Markup Company has total debt obligations with book and market values equal to $30 million and $28 million, respectively. It also has total equity with book and market values equal to $20 million and $70 million, respectively. If you were going to buy all of the assets of KneeMan Markup today, how much should you be willing to pay?
2. WACC: What is the weighted average cost of capital for a firm?
3. Taxes and the cost of debt: How are taxes accounted for when we calculate the cost of debt?
4. Cost of common stock: List and describe each of the three methods used to calculate the cost of common stock.
5. [EXCEL] Cost of common stock: Whitewall Tire Co. just paid an annual dividend of $1.60 on its common shares. If Whitewall is expected to increase its annual dividend by 2 percent per year into the foreseeable future and the current price of Whitewall's common shares is $11.66, what is the cost of common stock for Whitewall?
6. [EXCEL] Cost of common stock: Seerex Wok Co. is expected to pay a dividend of $1.10 one year from today on its common shares. That dividend is expected to increase by 5 percent every year thereafter. If the price of Seerex common stock is $13.75, what is the cost of its common equity capital?
7. [EXCEL] Cost of common stock: Two-Stage Rocket paid an annual dividend of $1.25 yesterday, and it is commonly known that the firm's management expects to increase its dividend by 8 percent for the next two years and by 2 percent thereafter. If the current price of Two-Stage's common stock is $17.80, what is the cost of common equity capital for the firm?
8. [EXCEL] Cost of preferred stock: Fjord Luxury Liners has preferred shares outstanding that pay an annual dividend equal to $15 per year. If the current price of Fjord preferred shares is $107.14, what is the after-tax cost of preferred stock for Fjord?
9. [EXCEL] Cost of preferred stock: Kresler Autos has preferred shares outstanding that pay annual dividends of $12, and the current price of the shares is $80. What is the after-tax cost of new preferred shares for Kresler if the flotation (issuance) costs for preferred shares are 5 percent?
10. WACC: Describe the alternatives to using a firm's WACC as a discount rate when evaluating a project.
11. [EXCEL] WACC: Capital Co. has a capital structure, based on current market values, that consists of 50 percent debt, 10 percent preferred stock, and 40 percent common stock. If the returns required by investors are 8 percent, 10 percent, and 15 percent for the debt, preferred stock, and common stock, respectively, what is Capital's after-tax WACC? Assume that the firm's marginal tax rate is 40 percent.
12. WACC: What are direct out-of-pocket costs?
WACC for a firm: Capital Co. has a capital structure that is financed, based on current market values, with 50 percent debt, 10 percent preferred shares, and 40 percent common shares. If the returns required by investors are 8 percent, 10 percent, and 15 percent for debt, preferred shares, and common equity, respectively, what is Capital's after-tax WACC? Assume that the firm's marginal tax rate is 40 percent.