Winston has $10 billion in total assets. Its balance sheet shows $1 billion in current liabilities, $3 billion in long-term debt, and $6 billion in common equity. It has 800 million shares of common stock outstanding. What is Winston’s market/book ratio? Ans: Book value per share = Common Equity / Shares outstanding = $ 6 billion / 800 million shares Book value per share = 6000/800 = $ 7.5 per share Market Price per share = $ 75 per share Winston’s market/book ratio = Market Price per share/ Book value per share Winston’s market/book ratio = 75/7.5 = 10 (3-4) Price/Earnings Ratio A company has an EPS of $1.50, a cash flow per share of $3.00, and a price/cash flow ratio of 8.0.
c. Internal common equity where the current market price of the common stock is $43.50. The expected dividend this coming year should be $3.25, increasing thereafter at a 7% annual growth rate. The corporation’s tax rate is 34%. d. A preferred stock paying a 10% dividend on a $125 par value. If a new issue is offered, flotation costs will be 12% of the current price of $150.
DSO = Receivables / Ave. sales per day Receivables= DSO * Ave. sales per day = 20 * 20,000 Receivables= $400,000 (3-2) Debt Ratio: Vigo Vacations has an equity multiplier of 2.5. The company’s assets are financed with some combination of long-term debt and common equity. What is the company’s debt ratio? Debt ratio = 1 – (1 / Equity multiplier) Debt ratio = 1 – (1/2.5) = 1 - .40 = .60 Debt ratio = 60% (3-3) Market/Book Ratio: Winston Washers’s stock price is $75 per share. Winston has $10 billion in total assets.
If the required return on this preferred stock is 6.5%, at what price should the preferred stock sell? =Preference Dividend/ Required Return= $7.5/ 6.5%= $ 115.38 13. The Isberg Company just paid a dividend of $0.75 per share, and that dividend is expected to grow at a constant rate of 5.50% per year in the future. The company's beta is 1.15, the market risk premium is 5.00%, and the risk-free rate is 4.00%. What is the company's current stock price, P0?
12418.43 b. If only $10,000 is invested, what annual interest rate is needed to produce $20,000 after 5 years? 14.87% c. If only $10,000 is invested, what stated rate must the First National Bank offer on its semiannual compounding CD to accumulate the required $20,000? 14.35% 4. Now consider the second alternative—5 annual payments of $2,000 each.
| | | | | Score: | 0/10 | | 2. Chapter 10 - The Cost of Capital Question MC #65 Bosio Inc.'s perpetual preferred stock sells for $75.00 per share, and it pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC?
Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred sells for $50 a share. What is the stock’s required rate of return? A company currently pays a dividend of $2 per share (D0 = $2). It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years, then at a constant rate of 7% thereafter.
She conducted market research and found that after-tax cash flows on the investment should be about $15,000 per year for the next 7 years. The franchiser stated that Kay would generate a 20 percent return. Her cost of capital is 10 percent. Find the following: a) The PVB. Payment is 15000, 7 is N, FV is 0, 10 is the I/Y and compute for the PV b) The PVC.
Medical Associates is a large for-profit group practice. Its dividends are expected to grow at a constant rate of 7% per year into the foreseeable future. The firm’s last dividend (D0) was $2, and its current stock price is $23. The firm’s beta coefficient is 1.6; the rate of return on 20 year T-bonds currently is 9%; the expected rate of return is 13%. The firm’s target capital structure calls for 50% debt financing, the interest rate required on the business’s new debt is 10% and its tax rate of 40%.
Both bonds make annual payments, have a YTM of 9 percent, and have five years to maturity. What is the current yield for bond P? For bond D? Explain your answers and the interrelationships among the various types of yields. Bond P: PMT=120 I=9 FV=1000 N=5 PV=1116.69