# Question Details

### FIN 8 Complete Solution

Question Details:
FIN 8 Complete Solution

QUESTION 1

.    If the market value of debt is \$155,527, market value of preferred stock is \$78,829, and market value of common equity is 312,100, what is the weight of preferred stock?  Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer.

.    QUESTION 2
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 3

.    ABC Industries will pay a dividend of \$2 next year on their common stock. The company predicts that the dividend will increase by 7 percent each year indefinitely. What is the dividend yield if the stock is selling for \$29 a share? Enter your answer in percentages rounded off to two decimal points. DO not enter % in the answer.

QUESTION 4

.    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? Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer.

QUESTION 5

.    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? Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer.

QUESTION 6

.    ABC Inc.'s perpetual preferred stock sells for \$69.4 per share, and it pays an \$8.1 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? Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.

QUESTION 7

.    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? Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer.

QUESTION 8

.    ABC, Inc., has 113 shares of common stock outstanding at a price of \$97 a share. They also have 397 shares of preferred stock outstanding at a price of \$54 a share. There are 414, 8 percent bonds outstanding that are priced at \$33. The bonds mature in 16 years and pay interest semiannually. What is the capital structure weight of the preferred stock? Enter your answer as a percentage rounded off to two decimal points. Do not enter % in the answer.

QUESTION 9

.    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? Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer.

QUESTION 10

.    The before-tax cost of debt is 9 percent. What is the after-tax cost of debt if the tax rate is 48 percent?  Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.

QUESTION 11

.    ABC Industries will pay a dividend of \$3 next year on their common stock. The company predicts that the dividend will increase by 7 percent each year indefinitely. What is the firm’s cost of equity if the stock is selling for \$21 a share? Enter your answer in percentages rounded off to two decimal points. DO not enter % in the answer.

QUESTION 12

.    The ABC Company has a cost of equity of 23.1 percent, a pre-tax cost of debt of 9.8 percent, and a tax rate of 30 percent. What is the firm’s weighted average cost of capital if the proportion of debt is 20.4%? Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.

QUESTION 13

.    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? Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.

QUESTION 14

.    If the market value of debt is \$114,756, market value of preferred stock is \$103,266, and market value of common equity is 175,648, what is the weight of common equity?  Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer.

QUESTION 15

.    If last dividend = \$6.3, g = 4.5%, and P0 = \$75.6, what is the stock’s expected total return for the coming year? Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.

QUESTION 16

.    A stock is expected to pay a dividend of \$1.6 at the end of the year.  The required rate of return is rs = 9.6%, and the expected constant growth rate is g = 7.1%.  What is the stock's current price? Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer.

QUESTION 17

.    If D1 = \$2.8, g (which is constant) = 3.3%, and P0 = \$73.9, what is the stock’s expected total return for the coming year? Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.

QUESTION 18

.    A stock just paid a dividend of \$1.3.  The required rate of return is 17.9%, and the constant growth rate is 5%.  What is the current stock price?Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer.

QUESTION 19

.    ABC’s last dividend paid was \$1.4, its required return is 17.5%, its growth rate is 6.1%, 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? Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer.

QUESTION 20

.    ABC is expected to pay a dividend of \$4.1 per share at the end of the year.  The stock sells for \$55 per share, and its required rate of return is 19.5%.  The dividend is expected to grow at some constant rate, g, forever.  What is the growth rate (i.e. solve for g)? Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.

QUESTION 21

.    ABC's stock has a required rate of return of 15.1%, and it sells for \$44 per share.  The dividend is expected to grow at a constant rate of 6.9% per year.  What is the expected year-end dividend, D1? Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer.

QUESTION 22

.    The common stock of Wetmore Industries is valued at \$62.8 a share. The company increases their dividend by 5 percent annually and expects their next dividend to be \$2.6. What is the required rate of return on this stock? Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.

QUESTION 23

.    If D1 = \$3.08, g (which is constant) = 2%, and P0 = \$37.17, what is the stock’s expected dividend yield for the coming year? Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.

QUESTION 24

.    ABC's last dividend was \$3.2.  The dividend growth rate is expected to be constant at 31% for 3 years, after which dividends are expected to grow at a rate of 7% forever.  If the firm's required return (rs) is 11%, what is its current stock price (i.e. solve for Po)? Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer.

.    ABC just paid a dividend of D0 = \$1.7.  Analysts expect the company's dividend to grow by 31% this year, by 24% in Year 2, and at a constant rate of 6% in Year 3 and thereafter.  The required return on this stock is 16%.  What is the best estimate of the stock’s current market value? Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer.

QUESTION 26

.    A stock just paid a dividend of D0 = \$2.3.  The required rate of return is rs = 12%, and the constant growth rate is g = 5%.  What is the current stock price? Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer.

QUESTION 27

.    ABC Enterprises' stock is expected to pay a dividend of \$1.8 per share.  The dividend is projected to increase at a constant rate of 6.9% per year.  The required rate of return on the stock is 16.2%.  What is the stock's expected price 3 years from today (i.e. solve for P3)? Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer.

QUESTION 28

.    ABC Inc., is expected to pay an annual dividend of \$4.4 per share next year. The required return is 17.5 percent and the growth rate is 4.6 percent. What is the expected value of this stock five years from now?  Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer.

QUESTION 29

.    The common stock of Connor, Inc., is selling for \$64 a share and has a dividend yield of 3.8 percent. What is the dividend amount? Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer.

QUESTION 30

.    A stock's next dividend is expected to be \$1.5.  The required rate of return on stock is 19.9%, and the expected constant growth rate is 6.2%.  What is the stock's current price? Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer.

QUESTION 31

.    ABC Company's last dividend was \$0.8.  The dividend growth rate is expected to be constant at 17% for 2 years, after which dividends are expected to grow at a rate of 6% forever.  The firm's required return (rs) is 16%.  What is its current stock price (i.e. solve for Po)? Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer.

QUESTION 32

ABC Enterprises' stock is currently selling for \$60.3 per share.  The dividend is projected to increase at a constant rate of 5.3% 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)? Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer.

<

Attachments

Solution Details:
FIN-8 Complete Solution

Answer: D1 1.8 g = 6....