29Whatwouldbethemaximumaninvestorshouldpayforthecommonstockofafirmthathasnogrowthopportunitiesbutpaysadividendof$1.36peryear?Therequiredrateofreturnis12.5percent.
31.Anewspaperlistingofbondpriceshasan"Askedyield"column.Thisyieldisbasedontheaskedpriceandrepresentsthe:couponrate.differencebetweenthecurrentyieldandtheyieldtomaturity.
32.MullineauxCorporationhasatargetcapitalstructureof65percentcommonstockand35percentdebt.Itscostofequityis14percent,andthecostofdebtis8percent.Therelevanttaxrateis30percent.
Whatisthecompany’sWACC?(Donotroundintermediatecalculationsandenteryouranswerasapercentroundedto2decimalplaces,e.g.,32.16.)
33.FilerManufacturinghas8millionsharesofcommonstockoutstanding.Thecurrentsharepriceis$50,andthebookvaluepershareis$5.Thecompanyalsohastwobondissuesoutstanding.Thefirstbondissuehasafacevalueof$69.4millionandacouponrateof6.7percentandsellsfor108.6percentofpar.Thesecondissuehasafacevalueof$59.4millionandacouponrateof7.2percentandsellsfor108.3percentofpar.Thefirstissuematuresin9years,thesecondin26years.
34Afirm’sWACCcanbecorrectlyusedtodiscounttheexpectedcashflowsofanewprojectwhenthatproject:willbefinancedwiththesameproportionsofdebtandequityasthosecurrentlyusedbytheoverallfirm.willbefinancedsolelywithinternalequity.
35.Thecostofpreferredstock:issetequaltothepretaxcostofdebtsinceitisafixedincomesecurity.isignoredbyallfirmswhencomputingWACC.isgenerallycalculatedusingtheoverallfirm’sbeta.isequaltothestock’sdividendyield.shouldbeadjustedfortaxeswhencomputingWACC.
36.WhencomputingWACC,youshouldusethe: