MBAA 518 PROBLEM SET 6 DOWNLOAD 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: 80 percent Target debt weight: 20 percent Cost of equity: 15 percent Cost of debt: 5 percent Tax rate: 35 percent
WACC = 12.65 percent
WACC = 8.45 percent
WACC = 13.00 percent
Question 2
Riddle Industries has the following parameters related to its stock and firm. Beta: 1.5 Recent Dividend 0.75 dollars Dividend Growth Rate 4.5 percent Expected return on market 12.5 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?
5.72 percent, 16.60 percent
5.52 percent, 12.30 percent
4.5 percent, 12.50 percent
Question 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: Current price/share: Beta:
185,000 $58.00 1.10
Market Information: Risk premium: Risk-free rate
7 percent 5 percent
WACC = 8.89%
WACC = 8.45%
WACC = 9.37%