Question

In: Finance

Suppose stock in the Top Gun Corporation has a beta of .80. The market risk premium...

Suppose stock in the Top Gun Corporation has a beta of .80. The market risk premium is 6%, and the risk-free rate is 6%. Top Gun’s last dividend was $1.20 per share, and the dividend is expected to grow at a constant 8% for the foreseeable future. The stock is currently selling for $45 per share. Estimate the firm’s component cost of equity capital.
Continuing the analysis, suppose Top Gun has a target capital structure of 1/3 debt and 2/3 common equity. If the yield to maturity its outstanding bonds is 9%, and the tax rate is 35%, calculate the firm’s WACC.

Solutions

Expert Solution

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Suppose the stock in Watta Corporation has a beta of 0.8. The market risk premium is...
Suppose the stock in Watta Corporation has a beta of 0.8. The market risk premium is 6 percent, and the risk-free rate is 3 percent. Watta’s dividend will be $1.20 per share next year and the dividend is expected to grow at 6 percent indefinitely. The stock currently sells for $45 per share. What is Watta’s cost of equity by the CAPM? ______% What is Watta’s cost of equity by the dividend growth model? ______% Suppose the market values of...
Suppose stock in Warren Corporation has a beta of 0.90. The market risk premium is 6...
Suppose stock in Warren Corporation has a beta of 0.90. The market risk premium is 6 percent, and the risk-free rate is 6 percent. Warren’s last dividend was €1.20 per share, and the dividend is expected to grow at 8 percent indefinitely. The stock currently sells for €45 per share. Warren has a target debt-equity ratio of 0.50. Its cost of debt is 9 percent before taxes. Its tax rate is 21 percent. Instructions: a. What is Warren’s cost of...
Suppose stock in Warren Corporation has a beta of 0.80. The market risk premium is 6...
Suppose stock in Warren Corporation has a beta of 0.80. The market risk premium is 6 percent, and the risk-free rate is 6 percent. Warren’s last dividend was €1.20 per share, and the dividend is expected to grow at 8 percent indefinitely. The stock currently sells for €45 per share. Warren has a target debt-equity ratio of 0.50. Its cost of debt is 9 percent before taxes. Its tax rate is 21 percent. Instructions: What is Warren’s cost of equity...
Stock M has a beta of 1.2. The market risk premium is 7.8 percent and the...
Stock M has a beta of 1.2. The market risk premium is 7.8 percent and the risk-free rate is 3.6 percent. Assume you compile a portfolio equally invested in Stock M, Stock N, and a risk-free security that has a portfolio beta equal to the overall market. What is the expected return on the portfolio? a.) 11.2% b.) 10.8% c.) 10.4% d.) 11.4% e.) 11.7%
2. A stock has a beta of 1.35, the market risk premium is 6 percent, and...
2. A stock has a beta of 1.35, the market risk premium is 6 percent, and the risk-free rate is 3.5 percent. What is the required rate of return on this stock? Group of answer choices a. 3.50% b. 6.87% c. 11.60% d. 13.13%
A company’s stock has a beta of 1.34. The market risk premium is 7.90 percent and...
A company’s stock has a beta of 1.34. The market risk premium is 7.90 percent and the risk-free rate is 3.00 percent annually. The company also has a bond outstanding with a coupon rate of 7.4 percent and semiannual payments. The bond currently sells for $1,910 and matures in 16 years. The par value is $2000. The company's debt–equity ratio is .53 and tax rate is 30 percent. a. What is the company's cost of equity? (Do not round intermediate...
Suppose a firm has a beta of 1.5.The market risk premium is expected to be 8%,...
Suppose a firm has a beta of 1.5.The market risk premium is expected to be 8%, and the current risk-free rate is 2%. Suppose a firm has a beta of 1.5.The market risk premium is expected to be 8%, and the current risk-free rate is 2%. The firm maintains a constant growing dividend policy that grows at 5% per year ; the most recent dividend was $1.8. Currently stock price is $21. Multiple Choice To find cost of equity using...
Suppose a firm has a beta of 1.5.The market risk premium is expected to be 8%,...
Suppose a firm has a beta of 1.5.The market risk premium is expected to be 8%, and the current risk-free rate is 2%. The firm maintains a constant growing dividend policy that grows at 5% per year ; the most recent dividend was $1.8. Currently stock price is $21. Multiple Choice If you use dividend growth model to estimate cost of equity, D1 is $1.8 If you use dividend growth model to estimate cost of equity, D1 is not $1.8
Stock in Country Road Industries has a beta of 1.04. The market risk premium is 8.5...
Stock in Country Road Industries has a beta of 1.04. The market risk premium is 8.5 percent, and T-bills are currently yielding 4 percent. The company's most recent dividend was $1.8 per share, and dividends are expected to grow at a 5.5 percent annual rate indefinitely. If the stock sells for $39 per share, what is your best estimate of the company's cost of equity? (Do not round your intermediate calculations.)
Stock in Country Road Industries has a beta of 0.85. The market risk premium is 8.5...
Stock in Country Road Industries has a beta of 0.85. The market risk premium is 8.5 percent, and T-bills are currently yielding 4 percent. The company's most recent dividend was $1.8 per share, and dividends are expected to grow at a 4.5 percent annual rate indefinitely. If the stock sells for $33 per share, what is your best estimate of the company's cost of equity? (Do not round your intermediate calculations.) 9.21% 10.2% 11.23% 7.83% 10.71%
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT