Question Details

FIN5080 QUIZ 6 Complete Solution

Question Details:
FIN5080 QUIZ 6 Complete Solution

QUESTION 1

        A stock just paid a dividend of D0 = $1.1.  The required rate of return is rs = 9.2%, and the constant growth rate is g = 6%.  What is the current stock price?


         

QUESTION 2

                            ABC Enterprises' stock is expected to pay a dividend of $1.6 per share.  The dividend is projected to increase at a constant rate of 4.5% per year.  The required rate of return on the stock is 19%.  What is the stock's expected price 3 years from today (i.e. solve for P3)?


         

         QUESTION 3

                            If D1 = $3.74, g (which is constant) = 2%, and P0 = $20.76, what is the stock’s expected dividend yield for the coming year?


         

         QUESTION 4

                            ABC Inc., is expected to pay an annual dividend of $3.5 per share next year. The required return is 13.6 percent and the growth rate is 7.7 percent. What is the expected value of this stock five years from now?
 

         

         QUESTION 5

                            The common stock of Connor, Inc., is selling for $58 a share and has a dividend yield of 2 percent. What is the dividend amount?


         

         QUESTION 6

                            ABC is expected to pay a dividend of $3.4 per share at the end of the year.  The stock sells for $136 per share, and its required rate of return is 13.6%.  The dividend is expected to grow at some constant rate, g, forever.  What is the growth rate (i.e. solve for g)?


         

         QUESTION 7

                            ABC Company's last dividend was $0.7.  The dividend growth rate is expected to be constant at 24% for 2 years, after which dividends are expected to grow at a rate of 7% forever.  The firm's required return (rs) is 11%.  What is its current stock price (i.e. solve for Po)?


         

         QUESTION 8

                            ABC’s last dividend paid was $2.5, its required return is 19.6%, its growth rate is 3.5%, and its growth rate is expected to be constant in the future.  What is Sorenson's expected stock price in 7 years, i.e., what is P7?


         

         QUESTION 9

                            ABC's stock has a required rate of return of 19.2%, and it sells for $41 per share.  The dividend is expected to grow at a constant rate of 5.9% per year.  What is the expected year-end dividend, D1?


         

         QUESTION 10

                            A stock's next dividend is expected to be $1.5.  The required rate of return on stock is 16.3%, and the expected constant growth rate is 5.6%.  What is the stock's current price?


         

         QUESTION 11

                            A stock is expected to pay a dividend of $2.4 at the end of the year.  The required rate of return is rs = 16.1%, and the expected constant growth rate is g = 6.3%.  What is the stock's current price?


         

         QUESTION 12

                            ABC's last dividend was $4.5.  The dividend growth rate is expected to be constant at 33% for 3 years, after which dividends are expected to grow at a rate of 6% forever.  If the firm's required return (rs) is 14%, what is its current stock price (i.e. solve for Po)?


         

         QUESTION 13

                            If D1 = $3.9, g (which is constant) = 4.2%, and P0 = $77.2, what is the stock’s expected total return for the coming year?


         

         QUESTION 14

                            ABC just paid a dividend of D0 = $2.4.  Analysts expect the company's dividend to grow by 32% this year, by 21% in Year 2, and at a constant rate of 6% in Year 3 and thereafter.  The required return on this stock is 11%.  What is the best estimate of the stock’s current market value?


         

         QUESTION 15

                            If last dividend = $4.8, g = 4.7%, and P0 = $67.2, what is the stock’s expected total return for the coming year?


         

         QUESTION 16

                            A stock just paid a dividend of $1.9.  The required rate of return is 12.1%, and the constant growth rate is 3.6%.  What is the current stock price?

         

         QUESTION 17

                            The common stock of Wetmore Industries is valued at $56.7 a share. The company increases their dividend by 6.2 percent annually and expects their next dividend to be $3. What is the required rate of return on this stock?


         

         QUESTION 18

                            ABC Enterprises' stock is currently selling for $94.8 per share.  The dividend is projected to increase at a constant rate of 6% per year.  The required rate of return on the stock is 12%.  What is the stock's expected price 5 years from today (i.e. solve for P5)?


         

         QUESTION 19

                            Several years ago, the ABC Company sold a $1,000 par value bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually.  The bond currently sells for $925 and the company’s tax rate is 40%.  What is the after-tax cost of debt?



        





QUESTION 20

                            The 8 percent annual coupon bonds of the ABC Co. are selling for $880.76. The bonds mature in 10 years. The bonds have a par value of $1,000 and payments are made semi-annually? What is the before-tax cost of debt?

         

        QUESTION 21

                            You were hired as a consultant to ABC Company, whose target capital structure is 35% debt, 15% preferred, and 50% common equity.  The before-tax cost of debt is 6.50%, the yield on the preferred is 6.00%, the cost of common stock is 11.25%, and the tax rate is 40%. What is the WACC?


         

         QUESTION 22

                            If the market value of debt is $107,763, market value of preferred stock is $90,535, and market value of common equity is 292,235, what is the weight of preferred stock?

         

        QUESTION 23

                            ABC Inc.'s perpetual preferred stock sells for $56.9 per share, and it pays an $8.9 annual dividend.  If the company were to sell a new preferred issue, it would incur a flotation cost of $4 per share.  What is the company's cost of preferred stock for use in calculating the WACC?

         

        QUESTION 24

                            The 7 percent annual coupon bonds of the ABC Co. are selling for $950.41. The bonds mature in 8 years. The bonds have a par value of $1,000 and payments are made semi-annually. If the tax rate is 35%, what is the after-tax cost of debt?


         

         QUESTION 25

                            The before-tax cost of debt is 6 percent. What is the after-tax cost of debt if the tax rate is 41 percent? 


         

         QUESTION 26

                            ABC Industries will pay a dividend of $4 next year on their common stock. The company predicts that the dividend will increase by 3 percent each year indefinitely. What is the dividend yield if the stock is selling for $24 a share?


         

         QUESTION 27

                            ABC, Inc., has 64 shares of common stock outstanding at a price of $69 a share. They also have 359 shares of preferred stock outstanding at a price of $98 a share. There are 897, 8 percent bonds outstanding that are priced at $28. The bonds mature in 16 years and pay interest semiannually. What is the capital structure weight of the preferred stock?


         

         QUESTION 28

                            The 8.5 percent annual coupon bonds of the ABC Co. are selling for $1,179. The bonds mature in 12 years. The bonds have a par value of $1,000. If the tax rate is 30%, what is the after-tax cost of debt?


         

         QUESTION 29

                            ABC Industries will pay a dividend of $3 next year on their common stock. The company predicts that the dividend will increase by 6 percent each year indefinitely. What is the firm’s cost of equity if the stock is selling for $25 a share?


         

         QUESTION 30

            The 8 percent annual coupon bonds of the ABC Co. are selling for $1,080.69. The bonds mature in 10 years. The bonds have a par value of $1,000. What is the before-tax cost of debt?


 

QUESTION 31

                            The ABC Company has a cost of equity of 18.7 percent, a pre-tax cost of debt of 5.6 percent, and a tax rate of 30 percent. What is the firm’s weighted average cost of capital if the proportion of debt is 61%?


         

         QUESTION 32

                        If the market value of debt is $104,892, market value of preferred stock is $77,164, and market value of common equity is 204,138, what is the weight of common equity? 
Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. 





Solution Details:
FIN5080 Quiz 6 Complete Solution

The before-tax cost of debt is 6 percent. What is the after-tax cost of debt if the tax rate is 41 percent? 
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  • Posted by: Vikas
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  • Submitted: 06/07/2018 11:58am

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