### FIN 8 Complete Solution

**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.

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**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.

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**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.*

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**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.

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**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.

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**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.

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**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?
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**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.

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**QUESTION 15**

. If last dividend = $6.3, g = 4.5%, and P_{0} = $75.6, what is the stock’s expected total return for the coming year?

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**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 r_{s} = 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.*

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**QUESTION 17**

. If D_{1} = $2.8, g (which is constant) = 3.3%, and P_{0} = $73.9, what is the stock’s expected total return for the coming year?

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**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.*

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**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.*

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**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)?

**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, D_{1}?

**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?

**QUESTION 23**

. If D_{1} = $3.08, g (which is constant) = 2%, and P_{0} = $37.17, what is the stock’s expected dividend yield for the coming year?

**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 (r_{s}) is 11%, what is its current stock price (i.e. solve for Po)?

. ABC just paid a dividend of D_{0} = $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?

**QUESTION 26**

. A stock just paid a dividend of D_{0} = $2.3. The required rate of return is r_{s} = 12%, and the constant growth rate is g = 5%. What is the current stock price?

**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)?

**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?
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**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?

**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?

**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 (r_{s}) is 16%. What is its current stock price (i.e. solve for Po)?

**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)?

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- Posted by: MacGyver
- Subjects: Business Ethnography

**FIN-8 Complete Solution**

Answer: D1 1.8 g = 6....

- Posted by:
**MacGyver** - Purchased: 7 times
- Submitted: 06/08/2018 10:12am