End-of-chapter problems. The following notations are used in this group of problems:

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The following notations are used in this group of problems:

kps = the cost of preferred stock.

kcs = the cost of internally generated common funds

kncs = the cost of new common stock.

g = the growth rate.

kd = the before-tax cost of debt.

T = the marginal tax rate.

Dt = dollar dividend per share, where Do is the most recently paid dividend and D1is the forthcoming dividend.

P = the value (present value) of a security.

NP = the value of a security less any flotation costs incurred in issuing the security

12-1A.

a. Net price after flotation costs = $1,125 (1 -.05)

= $1068.75

$1068.75 = +

kd = 9.89%

= kd(1-T)

= 6.53%

b. kncs = + g

= +.07

=.1437 = 14.37%

c. kcs = + g

= +.07

=.1514 = 15.14%

d. kps = =

=.0877 = 8.77%

e. = kd(1 - T)

= 12% (1 -.34)

= 7.92%

12-2A.

a. = kd(1 - T)

= 8%(1 - 0.34)

= 5.28%

b. kncs = + g

kncs = + 0.05 = 9.85%

c. $1,150(.90) = $1,035 = net price after flotation costs

$1,035 = +

RateValueValue

For: 11% $1,079.56 $1,079.56

kd% 1,035.00

12% 1,000.00

$ 44.56$ 79.56

kd = 0.11 + ´ 0.01 =.1156 = 11.56%

= kd(1 - T)

= 11.56% (1 - 0.34) = 7.63%

d. kps =

kps = = 8.24%

e. kcs = + g

kcs = + 0.04 = 11.90%

12-3A. kncs = + g

kncs = + 0.06 =.1206 = 12.06%

12-4A. $958 (1 - 0.11) = $852.62 = the net price (value less flotation costs).

$852.62 = +

RateValueValue

For: 8% $914.20 $914.13

kd% 852.62

9% ______ 839.27

$61.58 $74.86

kd = 0.08 + ´ 0.01 =.0882 = 8.82%

= 8.82% (1 - 0.18) = 7.23%

12-5A. kps = = = 7.69%

12-6A. NP_d = +

$945 = +

Since the net price on the bonds, $945, is less than the $1,000 par value, the before-tax cost of the debt must be greater than the 12 percent coupon interest rate ($120 ÷ $1,000).

RateValueValue

12% $1,000.00 $1,000.00

kd% 945.00

13% _______ 935.44

$ 55.00$ 64.56

kd =.12 + ´.01 =.1285 = 12.85%

= kd(1 - T) = 12.85%(1 -.34) = 8.48%

12-7A. Cost of preferred stock (kps)

k_ps = =

= =

= 14.29%

12-8A. kcs = + g

= + 0.15

=.1874 = 18.74%

12-9A.If the firm pays out 50 percent of its earnings in dividends, its recent earnings must have been $8 ($4 dividend divided by.5).

Thus, earnings increased from $5 to $8 in five years. Using Appendix C and looking for a table value of.625 ($5/$8), the annual growth rate is approximately ten percent.

a. Cost of internal common stock (kcs):

kcs = + g

= +.10 = +.10

=.1759 = 17.59%

b. Cost of external common (new common) stock, kncs

kncs = + g

= +.10

=.1825 = 18.25%

12-10A.

a. Price (P_d) = +

= $140(6.418) + $1000(.422)

= $1,320.52

b. NP_d = $1,320.52(1 - 0.105)

= $1,181.87

c. Number of Bonds = = 423.06 ≈ 424 Bonds

d. Cost of debt:

$1,181.87 = +

RateValueValue

For 10% $1,246.30 $1,246.30

kd% 1,181.87

11% ________ 1,176.46

$ 64.43$ 69.84

kd = 0.10 + =.1092 = 10.92%

= 10.92%(1 - 0.34) = 7.21%

12-11A.

a. 1. Price (P_d) = +

= $100 (6.418) + $1,000 (.422)

= $1,063.80

2. NP_d = $1,063.80 (1 - 0.105)

= $952.10

3. Number of Bonds =

= 525.15 ≈ 526 Bonds

4. Cost of debt:

$952.10 = +

RateValueValue

For: 10% $1,000.00 $1,000.00

kd% 952.10

11% ________ 940.90

$ 47.90$ 59.10

kd = 0.10 + =.1081 = 10.81%

= 10.81%(1 - 0.34) = 7.13%

b. There is a very slight decrease in the cost of debt because the flotation costs associated with the higher coupon bond are higher ($138.65 in flotation costs for the 14 percent coupon bond versus $111.70 for the 10 percent coupon bond).

12-12A.

Source	Capital Structure	After-tax cost of capital	Weighted cost
Common Stock	40%	18%	7.2%
Preferred Stock	10%	10%	1.0%
Debt	50%	8% x (1-.35)	2.6%
		k_wacc =	10.8%

12-13A.

Net price after flotation costs = $975 - $15

= $960.00

Cost of debt:

$960.00 = +

RateValueValue

For: 6% $1,000.00 $1,000.00

k_d% 960.00

7% ________ 908.48

$ 40.00$ 91.52

kd = 0.06 + =.064 = 6.4%

= 6.4%(1 - 0.30) = 4.48%

Cost of common stock, kncs

kncs = + g

= +.05

=.129 = 12.9%

Source	Capital Structure	After-tax cost of capital	Weighted cost
Debt	60%	4.48%	2.69%
Common Stock	40%	12.9%	5.16%
		k_wacc =	7.85%

12-14A.

Net price after flotation costs = $1,050 (1-.04)

= $1,008.00

Cost of debt:

$1,008.00 = +

RateValueValue

For: 6% $1,096.84 $1,096.84

k_d% 1,008.00

7% ________ 1,000.00

$ 88.84$ 96.84

kd = 0.06 + =.069 = 6.9%

= 6.9 %(1 - 0.30) = 4.8%

Cost of preferred stock (kps)

k_ps = =

= =

=.091 = 9.1%

Cost of common stock, kncs

kncs = + g

= +.10

=.166 = 16.6%

Source	Market Value	Weight	After-tax cost of capital	Weighted Cost
Bonds	$4,000,000	.33	4.8%	1.6%
Preferred Stock	2,000,000	.17	9.1%	1.5%
Common Stock	6,000,000	.50	16.6%	8.3%
	12,000,000	1.00	k_wacc =	11.4%

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Читайте в этой же книге: END-OF-CHAPTER QUESTIONS | Solutions to Problem Set A | Section I. Calculate the change in EBIT, Taxes, and Depreciation (this becomes an input in the calculation of Operating Cash Flow in Section II). | Section IV. Calculate Free Cash Flow (using information calculated in Sections II and III, in addition to the Change in Capital Spending). | SOLUTION TO INTEGRATIVE PROBLEMS | Solutions to Problem Set B | Section IV. Calculate Free Cash Flow (using information calculated in Sections II and III, in addition to the Change in Capital Spending). | CHAPTER OUTLINE | Charlie Chaplin's first attempt at 'talkie' is discovered |

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