Question

Growth​ Company's current share price is

$19.85

and it is expected to pay a

$1.05

dividend per share next year. After​ that, the​firm's dividends are expected to grow at a rate of

4.1%

per year.

a. What is an estimate of Growth​ Company's cost of​ equity?

b. Growth Company also has preferred stock outstanding that pays a

$1.95

per share fixed dividend. If this stock is currently priced at

$27.85​,

what is Growth​ Company's cost of preferred​ stock?c. Growth Company has existing debt issued three years ago with a coupon rate of

6.4%.

The firm just issued new debt at par with a coupon rate of

6.2%.

What is Growth​ Company's cost of​ debt?d. Growth Company has

4.7

million common shares outstanding and

1.1

million preferred shares​ outstanding, and its equity has a total book value of

$50.0

million. Its liabilities have a market value of

$20.1

million. If Growth​ Company's common and preferred shares are priced as in parts

​(a​)

and

​(b​),

what is the market value of Growth​ Company's assets?e. Growth Company faces a

25%

tax rate. Given the information in parts

​(a​)

through

​(d​),

and your answers to those​ problems, what is Growth​ Company's WACC?

​Note: Assume that the firm will always be able to utilize its full interest tax shield.

a. What is an estimate of Growth​ Company's cost of​ equity?

The required return​ (cost of​ capital) of levered equity is

9.399.39​%.

​(Round to two decimal​ places.)b. Growth Company also has preferred stock outstanding that pays a

$1.95

per share fixed dividend. If this stock is currently priced at

$27.85​,

what is Growth​ Company's cost of preferred​ stock?The cost of capital for preferred stock is

7.007.00​%.

​(Round to two decimal​ places.)c. Growth Company has existing debt issued three years ago with a coupon rate of

6.4%.

The firm just issued new debt at par with a coupon rate of

6.2%.

What is Growth​ Company's cost of​ debt? ​ (Select from the​ drop-down menus.)The​ pre-tax cost of debt is the​ firm's YTM on current debt. Since the firm recently issued debt at​ par, then the coupon rate of that debt must be

equal to

less than

greater than

equal to

the YTM of the debt.​ Thus, the​ pre-tax cost of debt is

6.2%

6.2%

6.4%

. d. Growth Company has

4.7

million common shares outstanding and

1.1

million preferred shares​ outstanding, and its equity has a total book value of

$50.0

million. Its liabilities have a market value of

$20.1

million. If Growth​ Company's common and preferred shares are priced as in parts

​(a​)

and

​(b​),

what is the market value of Growth​ Company's assets?The market value of assets is

​$144.03144.03

million.  ​(Round to two decimal​ places.)e. Growth Company faces a

25%

tax rate. Given the information in parts

​(a​)

through

​(d​),

and your answers to those​ problems, what is Growth​ Company's WACC?The weighted average cost of capital is

nothing​%.

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE