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29.What would be the maximum an investor should pay for the common
stock of a firm that has no growth opportunities but pays a dividend of
$1.36 per year? The required rate of return is 12.5 percent.
31.A newspaper listing of bond prices has an "Asked yield" column. This
yield is based on the asked price and represents the:
coupon rate.
difference between the current yield and the yield to maturity.
32.Mullineaux Corporation has a target capital structure of 65 percent
common stock and 35 percent debt. Its cost of equity is 14 percent, and the
cost of debt is 8 percent. The relevant tax rate is 30 percent.
What is the company’s WACC? (Do not round intermediate calculations
and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
33.Filer Manufacturing has 8 million shares of common stock outstanding.
The current share price is $50, and the book value per share is $5. The
company also has two bond issues outstanding. The first bond issue has a
face value of $69.4 million and a coupon rate of 6.7 percent and sells for
108.6 percent of par. The second issue has a face value of $59.4 million
and a coupon rate of 7.2 percent and sells for 108.3 percent of par. The
first issue matures in 9 years, the second in 26 years.
Suppose the company’s stock has a beta of 1.3. The risk-free rate is 2.8
percent, and the market risk premium is 6.7 percent. Assume that the
overall cost of debt is the weighted average implied by the two outstanding
debt issues. Both bonds make semiannual payments. The tax rate is 40
percent. What is the company’s WACC? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal
places, e.g., 32.16.)
34.A firm’s WACC can be correctly used to discount the expected cash
flows of a new project when that project:
will be financed with the same proportions of debt and equity as those
currently used by the overall firm.
will be financed solely with internal equity.
35.The cost of preferred stock:
is set equal to the pretax cost of debt since it is a fixed income security.
is ignored by all firms when computing WACC.
is generally calculated using the overall firm’s beta.
is equal to the stock’s dividend yield.
should be adjusted for taxes when computing WACC.
36.When computing WACC, you should use the: