Calculate The After-Tax Cost Of Debt

 

a.    Interest rate, 8 percent; tax rate, 0 percent. Round your answer to two decimal places.
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b.   Interest rate, 8 percent; tax rate, 25 percent. Round your answer to two decimal places.
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c.    Interest rate, 8 percent; tax rate, 30 percent. Round your answer to two decimal places.
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2.    LL Incorporated’s currently outstanding 9% coupon bonds have a yield to maturity of 12%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 40%, what is LL’s after-tax cost of debt? Round the answer to two decimal places.

 

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3.

 

Duggins Veterinary Supplies can issue perpetual preferred stock at a price of $52.5 a share with an annual dividend of $3.50 a share. Ignoring flotation costs, what is the company’s cost of preferred stock, rps? Round the answer to two decimal places.

 

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Summerdahl Resorts’ common stock is currently trading at $30 a share. The stock is expected to pay a dividend of $3.00 a share at the end of the year (D1 = $3.00), and the dividend is expected to grow at a constant rate of 5% a year. What is the cost of common equity? Round your answer to two decimal places.

 

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5.
Booher Book Stores has a beta of 1.2. The yield on a 3-month T-bill is 4.5% and the yield on a 10-year T-bond is 8%. The market risk premium is 4%, and the return on an average stock in the market last years was 8.5%. What is the estimated cost of common equity using the CAPM? Round your answer to two decimal places.

 

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6.

 

Shi Importers’ balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Shi’s tax rate is 40%, rd = 7%, rps = 5.7%, and rs = 11%. If Shi has a target capital structure of 30% debt, 5% preferred stock, and 65% common stock, what is Shi’s WACC? Round your answer to two decimal places.

 

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David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company’s outstanding bonds is 8%, and the company’s tax rate is 40%. Ortiz’s CFO has calculated the company’s WACC as 8.74%. What is the company’s cost of equity capital? Round your answer to two decimal places.

 

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8.On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $25 million in new projects. The firm’s present market value capital structure, shown below, is considered to be optimal. Assume that there is no short-term debt.