You own $3,300 worth of stock in a company that is expected to pay dividend of $12 per share in 1 year and a liquidating dividend of $45 per share in 2 years. The required return on stock is 20%. Your preference is to receive equal dividends in each of the next 2 years. Show how you would accomplish this by creating homemade dividends.

Calculation of individual costs and WACC   Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following​ weights: 30​% ​long-term debt, 10​% preferred​ stock, and 60​% common stock equity​ (retained earnings, new common​ stock, or​ both). The​ firm's tax rate is 26​%.

Debt The firm can sell for ​$1030 a 20​-year, ​$1,000 ​-par-value bond paying annual interest at a 7.00​% coupon rate. A flotation cost of 2.52% of the par value is required.

Preferred stock 10.00​% ​(annual dividend) preferred stock having a par value of ​$100 can be sold for ​$96 . An additional fee of ​$2 per share must be paid to the underwriters.

Common stock  The​ firm's common stock is currently selling for ​$90 er share. The stock has paid a dividend that has gradually increased for many​ years, rising from ​$2.25 ten years ago to the ​$3.67 dividend​ payment D0​, that the company just recently made. If the company wants to issue new new common​ stock, it will sell them ​$2.00 below the current market price to attract​ investors, and the company will pay ​$3.50 per share in flotation costs.  

a.  Calculate the​ after-tax cost of debt.

b.  Calculate the cost of preferred stock.

c.  Calculate the cost of common stock​ (both retained earnings and new common​ stock).

d.  Calculate the WACC for Dillon Labs.

Determine the before and after-tax return from each of the following trades. Assume a

marginal tax rate of 40%.

a. You purchase a bond today that has a quoted price of 94.455/94.695, a fixed coupon

rate of 6% (paid quarterly) which last paid a coupon 40 days prior. You sell the

bond in exactly one year for a quoted price of 97.565/97.950.

b. You purchased a newly issued bond one year ago. At the time of issuance, the bond

was sold by the company for par, had a coupon rate of 5.5% (paid semi-annually)

and 10 years to maturity. The YTM on the bond today is 6.25% and you sell it.

the main services that financial institutions provide as financial intermediaries

You are called in as a financial analyst to appraise the bonds of Olsen’s Clothing Stores. The $1,000 par value bonds have a quoted annual interest rate of 12 percent, which is paid semiannually. The yield to maturity on the bonds is 12 percent annual interest. There are 10 years to maturity. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. Compute the price of the bonds based on semiannual analysis. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

BOND PRICE___________

b. With 5 years to maturity, if yield to maturity goes down substantially to 6 percent, what will be the new price of the bonds? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

NEW BOND PRICE________________

***Please show your math work, thank you!

Assume that stock market returns have the market index as a common factor, and that all stocks in the economy have a beta of 2.0 on the market index. Firm-specific returns all have a standard deviation of 32%.

Suppose that an analyst studies 20 stocks and finds that one-half of them have an alpha of +3.0%, and the other half have an alpha of −3.0%. Suppose the analyst invests $1.0 million in an equally weighted portfolio of the positive alpha stocks, and shorts $1 million of an equally weighted portfolio of the negative alpha stocks.

a. What is the expected profit (in dollars) and standard deviation of the analyst’s profit? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

b. How does your answer change if the analyst examines 50 stocks instead of 20 stocks? 100 stocks? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

Market Value Capital Structure

Suppose the Schoof Company has this book value balance sheet:

The notes payable are to banks, and the interest rate on this debt is 11%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead are part of the company's permanent capital structure. The long-term debt consists of 30,000 bonds, each with a par value of $1,000, an annual coupon interest rate of 7%, and a 25-year maturity. The going rate of interest on new long-term debt, r_d, is 10%, and this is the present yield to maturity on the bonds. The common stock sells at a price of $50 per share. Calculate the firm's market value capital structure. Do not round intermediate calculations. Round your answers to two decimal places.

West Fraser Timber Company (WFT) is expected to have free cash flow in the coming year of $2 million and its free cash flow is expected maintain at a sustainable growth rate of 4% per year. It has a debt worth $10 million. It’s equity cost of capital is 12%, cost of debt before tax is 6%, and it pays a corporate tax rate of 30%. If WFT Company maintains a debt-equity ratio of 0.5 and the company has 3 million common shares outstanding, what is the fair value of WFT stock?

Consider an asset that costs $475,200 and is depreciated straight-line to zero over its 8-year tax life. The asset is to be used in a 5-year project; at the end of the project, the asset can be sold for $59,400.

Required : If the relevant tax rate is 31 percent, what is the aftertax cash flow from the sale of this asset?

A project has an unlevered NPV of $1.5 million. To finance the project, debt is being issued with associated flotation costs of $60,000. The flotation costs can be amortized over the project's 5-year life. The debt of $10 million is being issued at the market interest rate of 10 percent paid annually, with principal repaid in a lump sum at the end of the fifth year. If the firm's tax rate is 21 percent, calculate the project's APV.

David has a savings account with a 7,000 balance today. The account earns an annual percentage rate of interest of 2.25%, compounded monthly. David plans to make no other deposits or withdrawals. How many years will it take David's account balance to double?

The Metchosin Corporation has two different bonds currently outstanding. Bond M has a face value of $30,000 and matures in 20 years. The bond makes no payments for the first six years, then pays $3,100 every six months over the subsequent eight years, and finally pays $3,400 every six months over the last six years. Bond N also has a face value of $30,000 and a maturity of 20 years; it makes no coupon payments over the life of the bond. The required return on both these bonds is 12% compounded semiannually, what is the current price of bond M and bond N? (Do not round intermediate calculations. Round the final answers to 2 decimal places.)