Question 1
Eaglet Corporation has the following target and costs associated with its capital structure. Based on these parameters what is Eaglet Corporations weighted average cost of capital?
| Target common equity weight: | 50 percent |
| Target debt weight: | 50 percent |
| Cost of equity: | 12 percent |
| Cost of debt: | 4 percent |
| Tax rate: | 35 percent |
Flag this QuestionQuestion 2
Riddle Industries has the following parameters related to its stock and firm.
| Beta: | 1.1 |
| Recent Dividend | 1.05 dollars |
| Dividend Growth Rate | 4.5 percent |
| Expected return on market | 11.0 percent |
| Treasury Bills Yield | 4.3 percent |
| Most recent stock price | 64.00 dollars |
What is the cost of equity using DDM? What is the cost of equity using SML?
| A. 6.21 percent, 11.67 percent |
| B. 6.01 percent, 7.37 percent |
| C. 4.5 percent, 11.00 percent |
Flag this QuestionQuestion 3
Given the following information for UARE Inc. Find the WACC.
| Tax rate | 35 percent |
| Debt: | |
| Bonds outstanding: | 6000 |
| Coupon on bonds: | 4 percent |
| Par value of bonds: | $1000 |
| Bonds selling at what percent of par: | 105 |
| Bonds make coupon payments: | semi-annually |
| Years to maturity of bonds | 25 |
| |
| Common Stock: | |
| Shares Outstanding: | 185,000 |
| Current price/share: | $58.00 |
| Beta: | 1.10 |
| |
| Market Information: | |
| Risk premium: | 7 percent |
| Risk-free rate | 5 percent |
Solution: Question 1 Eaglet Corporation has the following target and costs