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标题: Corporate Finance【Reading 37】Sample [打印本页]
作者: hinsafdar    时间: 2012-3-29 11:20     标题: [2012 L1] Corporate Finance【Session 11 - Reading 37】Sample

A company is planning a $50 million expansion. The expansion is to be financed by selling $20 million in new debt and $30 million in new common stock. The before-tax required return on debt is 9% and the required return for equity is 14%. If the company is in the 40% tax bracket, the marginal weighted average cost of capital is closest to:
A)
9.0%.
B)
10.0%
C)
10.6%.


(0.4)(9%)(1 - 0.4) + (0.6)(14%) = 10.56%
作者: hinsafdar    时间: 2012-3-29 11:21

Assume a firm uses a constant WACC to select investment projects rather than adjusting the projects for risk. If so, the firm will tend to:
A)
reject profitable, low-risk projects and accept unprofitable, high-risk projects.
B)
accept profitable, low-risk projects and accept unprofitable, high-risk projects.
C)
accept profitable, low-risk projects and reject unprofitable, high-risk projects.


The firm will reject profitable, low-risk projects because it will use a hurdle rate that is too high. The firm should lower the required rate of return for lower risk projects. The firm will accept unprofitable, high-risk projects because the hurdle rate of return used will be too low relative to the risk of the project. The firm should increase the required rate of return for high-risk projects.
作者: hinsafdar    时间: 2012-3-29 11:21

In calculating the weighted average cost of capital (WACC), which of the following statements is least accurate?
A)
Different methods for estimating the cost of common equity might produce different results.
B)
The cost of preferred equity capital is the preferred dividend divided by the price of preferred shares.
C)
The cost of debt is equal to one minus the marginal tax rate multiplied by the coupon rate on outstanding debt.


After-tax cost of debt = bond yield − tax savings = kd − kdt = kd(1 − t)
作者: hinsafdar    时间: 2012-3-29 11:21

Which of the following events will reduce a company's weighted average cost of capital (WACC)?
A)
An increase in expected inflation.
B)
A reduction in the company's bond rating.
C)
A reduction in the market risk premium.


An increase in either the company’s beta or the market risk premium will cause the WACC to increase using the CAPM approach. A reduction in the market risk premium will reduce the cost of equity for WACC.
作者: hinsafdar    时间: 2012-3-29 11:22

The following data is regarding the Link Company:
What is Link's after-tax cost of capital?
A)
12.0%.
B)
10.5%.
C)
12.5%.


Use the revised form of the constant growth model to determine the cost of equity. Use algebra to determine the weights for the target capital structure realizing that debt is 50% of equity. Substitute 0.5E for D in the formula below.ks = D1 ÷ P0 + growth = (3)(1.05) ÷ (31.50) + 0.05 = 0.15 or 15% V = debt + equity = 0.5 + 1 = 1.5 WACC = (E ÷ V)(ks) + (D ÷ V)(kdebt)(1 − t)
WACC = (1 ÷ 1.5)(0.15) + (0.5 ÷ 1.5)(0.10)(1 − 0.4) = 0.1 + 0.02 = 0.12 or 12%
作者: prashantsahni    时间: 2012-3-29 11:23

Helmut Humm, manager at a large U.S. firm, has just been assigned to the capital budgeting area to replace a person who left suddenly. One of Humm’s first tasks is to calculate the company’s weighted average cost of capital (WACC) – and fast! The CEO is scheduled to present to the board in half an hour and needs the WACC – now! Luckily, Humm finds clear notes on the target capital component weights. Unfortunately, all he can find for the cost of capital components is some handwritten notes. He can make out the numbers, but not the corresponding capital component.  As time runs out, he has to guess.
Here is what Humm deciphered:
If Humm guesses correctly, the WACC is:
A)
11.0%.
B)
9.2%.
C)
9.0%.


If Humm remembers to order the capital components from cheapest to most expensive, he can calculate WACC. The order from cheapest to most expensive is: debt, preferred stock (which acts like a hybrid of debt and equity), and common equity.
Then, using the formula for WACC = (wd)(kd) + (wps)(kps) + (wce)(kce)

where wd, wps, and we are the weights used for debt, preferred stock, and common equity.

WACC = (0.30 × 6.0%) + (0.20 × 8.5%) + (0.50 × 15.00%) = 11.0%.
作者: prashantsahni    时间: 2012-3-29 11:23

When calculating the weighted average cost of capital (WACC) an adjustment is made for taxes because:
A)
equity earns higher return than debt.
B)
the interest on debt is tax deductible.
C)
equity is risky.


Equity and preferred stock are not adjusted for taxes because dividends are not deductible for corporate taxes. Only interest expense is deductible for corporate taxes.
作者: prashantsahni    时间: 2012-3-29 11:24

A company has the following information:The weighted average cost of capital (WACC) is closest to:
A)
12.5%.
B)
13.0%.
C)
13.5%.


Ks = 0.10 + (0.05)(1.2) = 0.16 or 16%
Kd = Solve for i: N = 40, PMT = 50, FV = 1,000, PV = -849.54, CPT I = 6 × 2 = 12%
WACC = (0.4)(12)(1 - 0.4) + (0.6)(16)= 2.88 + 9.6 = 12.48
作者: prashantsahni    时间: 2012-3-29 11:24

A company has the following capital structure:The company's weighted average cost of capital is closest to:
A)
9.84%.
B)
9.28%.
C)
10.53%.


Step 1: Determine the after-tax cost of debt:

The after-tax cost of debt [kd (1 – t)] is used to compute the weighted average cost of capital. It is the interest rate on new debt (kd) less the tax savings due to the deductibility of interest (kdt).
Here, we are given the inputs needed to calculate kd: N = 15 × 2 = 30; PMT = (1,000 × 0.07) / 2 = 35; FV = 1,000; PV = -1,047.46; CPT → I = 3.25, multiply by 2 = 6.50%.
Thus, kd (1 – t) = 6.50% × (1 – 0.35) = 4.22%

Step 2: Determine the cost of preferred stock:

Preferred stock is a perpetuity that pays a fixed dividend (Dps) forever. The cost of preferred stock (kps) = Dps / P

where:

Dps = preferred dividends.


P = price

Here, kps = Dps / P = $2.80 / $35 = 0.08, or 8.0%.

Step 3: Determine the cost of common equity:

kce = (D1 / P0) + g

where:

D1 = Dividend in next year


P0 = Current stock price


g = Dividend growth rate

Here, D1 = D0 × (1 + g) = $3.00 × (1 + 0.06) = $3.18.
kce = (3.18 / 40) + 0.06 = 0.1395 or 13.95%.

Step 4: Calculate WACC:

WACC = (wd)(kd) + (wps)(kps) + (wce)(kce)
where wd, wps, and wce are the weights used for debt, preferred stock, and common equity.
Here, WACC = (0.30 × 4.22%) + (0.20 × 8.0%) + (0.50 × 13.95%) = 9.84%.

Note: Your calculation may differ slightly, depending on whether you carry all calculations in your calculator, or round to two decimals and then calculate.
作者: prashantsahni    时间: 2012-3-29 11:25

Assume that a company has equal amounts of debt, common stock, and preferred stock. An increase in the corporate tax rate of a firm will cause its weighted average cost of capital (WACC) to:
A)
fall.
B)
rise.
C)
more information is needed.


Recall the WACC equation:

WACC = [wd × kd × (1 − t)] + (wps × kps) + (wce × ks)

The increase in the corporate tax rate will result in a lower cost of debt, resulting in a lower WACC for the company.
作者: prashantsahni    时间: 2012-3-29 11:25

Ravencroft Supplies is estimating its weighted average cost of capital (WACC). Ravencroft’s optimal capital structure includes 10% preferred stock, 30% debt, and 60% equity. They can sell additional bonds at a rate of 8%. The cost of issuing new preferred stock is 12%. The firm can issue new shares of common stock at a cost of 14.5%. The firm’s marginal tax rate is 35%. Ravencroft’s WACC is closest to:
A)
13.3%.
B)
12.3%.
C)
11.5%.


0.10(12%) + 0.30(8%)(1 – 0.35) + 0.6(14.5%) = 11.46%.
作者: prashantsahni    时间: 2012-3-29 11:25

Hatch Corporation's target capital structure is 40% debt, 50% common stock, and 10% preferred stock. Information regarding the company's cost of capital can be summarized as follows:
What is the company's weighted average cost of capital (WACC)?
A)
10.59%.
B)
10.03%.
C)
10.18%.


WACC = (wd)(kd)(1 − t) + (wps)(kps) + (wce)(kce)
where:
wd = 0.40
wce = 0.50
wps = 0.10
kd = 0.07
kps = Dps / P = 4.00 / 40.00 = 0.10
kce = D1 / P0 + g = 2.00 / 25.00 + 0.07 = 0.08 + 0.07 = 0.15
WACC = (0.4)(0.07)(1 − 0.4) + (0.1)(0.10) + (0.5)(0.15) = 0.0168 + 0.01 + 0.075 = 0.1018 or 10.18%
作者: prashantsahni    时间: 2012-3-29 11:26

A firm has $100 in equity and $300 in debt. The firm recently issued bonds at the market required rate of 9%. The firm's beta is 1.125, the risk-free rate is 6%, and the expected return in the market is 14%. Assume the firm is at their optimal capital structure and the firm's tax rate is 40%. What is the firm's weighted average cost of capital (WACC)?
A)
8.6%.
B)
7.8%.
C)
5.4%.


CAPM = RE = RF + B(RM − RF) = 0.06 + (1.125)(0.14 − 0.06) = 0.15
WACC = (E ÷ V)(RE) + (D ÷ V)(RD)(1 − t)
V = 100 + 300 = 400
WACC = (1 ÷ 4)(0.15) + (3 ÷ 4)(0.09)(1 − 0.4) = 0.078
作者: prashantsahni    时间: 2012-3-29 11:26

A firm is planning a $25 million expansion project. The project will be financed with $10 million in debt and $15 million in equity stock (equal to the company's current capital structure). The before-tax required return on debt is 10% and 15% for equity. If the company is in the 35% tax bracket, what cost of capital should the firm use to determine the project's net present value (NPV)?
A)
12.5%.
B)
9.6%.
C)
11.6%.

WACC = (E / V)(RE) + (D / V)(RD)(1 − TC)
WACC = (15 / 25)(0.15) + (10 / 25)(0.10)(1 − 0.35) = 0.09 + 0.026 = 0.116 or 11.6%
作者: prashantsahni    时间: 2012-3-29 11:27

Which of the following choices best describes the role of taxes on the after-tax cost of capital in the U.S. from the different capital sources?
Common equity Preferred equityDebt
A)
No effectDecreaseDecrease
B)
DecreaseDecreaseNo effect
C)
No effectNo effectDecrease


In the U.S., interest paid on corporate debt is tax deductible, so the after-tax cost of debt capital is less than the before-tax cost of debt capital. Dividend payments are not tax deductible, so taxes do not decrease the cost of common or preferred equity.
作者: prashantsahni    时间: 2012-3-29 11:27

At a recent Haggerty Semiconductors Board of Directors meeting, Merle Haggerty was asked to discuss the topic of the company’s weighted average cost of capital (WACC).
At the meeting Haggerty made the following statements about the company’s WACC:
Statement 1: A company creates value by producing a higher return on its assets than the cost of financing those assets. As such, the WACC is the cost of financing a firm’s assets and can be viewed as the firm’s opportunity cost of financing its assets.
Statement 2: Since a firm’s WACC reflects the average risk of the projects that make up the firm, it is not appropriate for evaluating all new projects. It should be adjusted upward for projects with greater-than-average risk and downward for projects with less-than-average risk.
Are Statement 1 and Statement 2, as made by Haggerty CORRECT?
Statement 1Statement 2
A)
CorrectIncorrect
B)
IncorrectCorrect
C)
CorrectCorrect


Each statement that Haggerty has made to the board of directors regarding the weighted average cost of capital is correct. New projects should have a return that is higher than the cost to finance those projects.
作者: prashantsahni    时间: 2012-3-29 11:27

Deighton Industries has 200,000 bonds outstanding. The par value of each corporate bond is $1,000, and the current market price of the bonds is $965. Deighton also has 6 million common shares outstanding, with a book value of $35 per share and a market price of $28 per share. At a recent board of directors meeting, Deighton board members decided not to change the company’s capital structure in a material way for the future. To calculate the weighted average cost of Deighton’s capital, what weights should be assigned to debt and to equity?
DebtEquity
A)
53.46%46.54%
B)
48.85%51.15%
C)
56.55%43.45%


In order to calculate the weighted average cost of capital (WACC), market value weights should be used.
For the bonds=200,000 × $965=$193,000,000
For the stocks=6,000,000 × $28=$168,000,000
$361,000,000

The weight of debt would be: 193,000,000 / 361,000,000 = 0.5346 = 53.46%
The weight of common stock would be: 168,000,000 / 361,000,000 = 0.4654 = 46.54%
作者: prashantsahni    时间: 2012-3-29 11:28

Hans Klein, CFA, is responsible for capital projects at Vertex Corporation. Klein and his assistant, Karl Schwartz, were discussing various issues about capital budgeting and Schwartz made a comment that Klein believed to be incorrect. Which of the following is most likely the incorrect statement made by Schwartz?
A)
“The weighted average cost of capital (WACC) should be based on market values for the firm’s outstanding securities.”
B)
“Net present value (NPV) and internal rate of return (IRR) result in the same rankings of potential capital projects.”
C)
“It is not always appropriate to use the firm’s marginal cost of capital when determining the net present value of a capital project.”


It is possible that the NPV and IRR methods will give different rankings. This often occurs when there is a significant difference in the timing of the cash flows between two projects. A firm’s marginal cost of capital, or WACC, is only appropriate for computing a project’s NPV if the project has the same risk as the firm.
作者: prashantsahni    时间: 2012-3-29 11:28

Carlos Rodriquez, CFA, and Regine Davis, CFA, were recently discussing the relationships between capital structure, capital budgets, and net present value (NPV) analysis. Which of the following comments made by these two individuals is least accurate?
A)
“For projects with more risk than the average firm project, NPV computations should be based on the marginal cost of capital instead of the weighted average cost of capital.”
B)
“The optimal capital budget is determined by the intersection of a firm’s marginal cost of capital curve and its investment opportunity schedule.”
C)
“A break point occurs at a level of capital expenditure where one of the component costs of capital increases.”


The marginal cost of capital (MCC) and the weighted average cost of capital (WACC) are the same thing. If a firm’s capital structure remains constant, the MCC (WACC) increases as additional capital is raised.
作者: prashantsahni    时间: 2012-3-29 11:29

The marginal cost of capital is:
A)
tied solely to the specific source of financing.
B)
equal to the firm's weighted cost of funds.
C)
the cost of the last dollar raised by the firm.


The “marginal” cost refers to the last dollar of financing acquired by the firm assuming funds are raised in the same proportion as the target capital structure. It is a percentage value based on both the returns required by the last bondholders and stockholders to provide capital to the firm. Regardless of whether the funding came from bondholders or stockholders, both debt and equity are needed to fund projects.
作者: prashantsahni    时间: 2012-3-29 11:29

Enamel Manufacturing (EM) is considering investing in a new vehicle. EM finances new projects using retained earnings and bank loans. This new vehicle is expected to have the same level of risk as the typical investment made by EM. Which one of the following should the firm use in making its decision?
A)
Marginal cost of capital.
B)
Cost of retained earnings.
C)
After-tax cost of debt.


The marginal cost of capital represents the cost of raising an additional dollar of capital. The cost of retained earnings would only be appropriate if the company avoided creditor-supplied financing or the issuance of new common or preferred stock (and preferred stock financing). The after-tax cost of debt is never sufficient, because a business, regardless of their size, always has a residual owner, and hence a cost of equity.
作者: prashantsahni    时间: 2012-3-29 11:30

Which of the following statements is least accurate regarding the marginal cost of capital’s role in determining the net present value (NPV) of a project?
A)
Projects for which the present value of the after-tax cash inflows is greater than the present value of the after-tax cash outflows should be undertaken by the firm.
B)
The NPVs of potential projects of above-average risk should be calculated using the marginal cost of capital for the firm.
C)
When using a firm’s marginal cost of capital to evaluate a specific project, there is an implicit assumption that the capital structure of the firm will remain at the target capital structure over the life of the project.


The WACC is the appropriate discount rate for projects that have approximately the same level of risk as the firm’s existing projects. This is because the component costs of capital used to calculate the firm’s WACC are based on the existing level of firm risk. To evaluate a project with above (the firm’s) average risk, a discount rate greater than the firm’s existing WACC should be used. Projects with below-average risk should be evaluated using a discount rate less than the firm’s WACC. An additional issue to consider when using a firm’s WACC (marginal cost of capital) to evaluate a specific project is that there is an implicit assumption that the capital structure of the firm will remain at the target capital structure over the life of the project. These complexities aside, we can still conclude that the NPVs of potential projects of firm-average risk should be calculated using the marginal cost of capital for the firm. Projects for which the present value of the after-tax cash inflows is greater than the present value of the after-tax cash outflows should be undertaken by the firm.
作者: prashantsahni    时间: 2012-3-29 11:30

Which of the following statements about the role of the marginal cost of capital in determining the net present value of a project is most accurate? The marginal cost of capital should be used to discount the cash flows:
A)
of all projects the firm is considering.
B)
if the firm’s capital structure is expected to change during the project’s life.
C)
for potential projects that have a level of risk near that of the firm’s average project.


Net present values of projects with the average risk for the firm should be determined using the firm’s marginal cost of capital. The discount rate should be adjusted for projects with above-average or below-average risk. Using the marginal cost of capital assumes the firm’s capital structure does not change over the life of the project.
作者: prashantsahni    时间: 2012-3-29 11:30

Which of the following is most accurate regarding the component costs and component weights in a firm’s weighted average cost of capital (WACC)?
A)
The appropriate pre-tax cost of a firm’s new debt is the average coupon rate on the firm’s existing debt.
B)
The weights in the WACC should be based on the book values of the individual capital components.
C)
Taxes reduce the cost of debt for firms in countries in which interest payments are tax deductible.


The after-tax cost of debt = kd(1 – t) = kd – kd(t), where kd is the pretax cost of debt and t is the effective corporate tax rate. So the tax savings from the tax treatment of debt is kd(t). Capital component weights should be based on market weights, not book values. And, the appropriate pre-tax cost of debt is the yield to maturity on the firm’s existing debt.
作者: prashantsahni    时间: 2012-3-29 11:31

Ferryville Radar Technologies has five-year, 7.5% notes outstanding that trade at a yield to maturity of 6.8%. The company’s marginal tax rate is 35%. Ferryville plans to issue new five-year notes to finance an expansion. Ferryville’s cost of debt capital is closest to:
A)
4.4%.
B)
4.9%.
C)
2.4%.


Ferryville’s cost of debt capital is kd(1 - t) = 6.8% × (1 - 0.35) = 4.42%. Note that the before-tax cost of debt is the yield to maturity on the company’s outstanding notes, not their coupon rate. If the expected yield on new par debt were known, we would use that. Since it is not, the yield to maturity on existing debt is the best approximation.
作者: prashantsahni    时间: 2012-3-29 11:31

The 6% semiannual coupon, 7-year notes of Woodbine Transportation, Inc. trade for a price of $94.54. What is the company’s after-tax cost of debt capital if its marginal tax rate is 30%?
A)
2.1%.
B)
4.2%.
C)
4.9%.


To determine Woodbine’s before-tax cost of debt, find the yield to maturity on its outstanding notes:
PV = -94.54; FV = 100; PMT = 6 / 2 = 3; N = 14; CPT → I/Y = 3.50 × 2 = 7%

Woodbine’s after-tax cost of debt is kd(1 - t) = 7%(1 - 0.3) = 4.9%
作者: prashantsahni    时间: 2012-3-29 11:31

The debt of Savanna Equipment, Inc. has an average maturity of ten years and a BBB rating. A market yield to maturity is not available because the debt is not publicly traded, but the market yield on debt with similar characteristics is 8.33%. Savanna is planning to issue new ten-year notes that would be subordinate to the firm’s existing debt. The company’s marginal tax rate is 40%. The most appropriate estimate of the after-tax cost of this new debt is:
A)
5.0%.
B)
Between 3.3% and 5.0%.
C)
More than 5.0%.


The after-tax cost of debt similar to Savanna’s existing debt is kd(1 - t) = 8.33%(1 - 0.4) = 5.0%. Because the anticipated new debt will be subordinated in the company’s debt structure, investors will demand a higher yield than the existing debt carries. Therefore, the appropriate after-tax cost of the new debt is more than 5.0%.
作者: prashantsahni    时间: 2012-3-29 11:32

Which of the following is least likely to be useful to an analyst who is estimating the pretax cost of a firm’s fixed-rate debt?
A)
The yield to maturity of the firm’s existing debt.
B)
The coupon rate on the firm’s existing debt.
C)
Seniority and any special covenants of the firm’s anticipated debt.


Ideally, an analyst would use the YTM of a firm’s existing debt as the pretax cost of new debt. When a firm’s debt is not publicly traded, however, a market YTM may not be available. In this case, an analyst may use the yield curve for debt with the same rating and maturity to estimate the market YTM. If the anticipated debt has unique characteristics that affect YTM, these characteristics should be accounted for when estimating the pretax cost of debt. The cost of debt is the market interest rate (YTM) on new (marginal) debt, not the coupon rate on the firm’s existing debt. If you are provided with both coupon and YTM on the exam, you should use the YTM.
作者: prashantsahni    时间: 2012-3-29 11:32

Which of the following is least likely to be useful to an analyst when estimating the cost of raising capital through the issuance of non-callable, nonconvertible preferred stock?
A)
The stated par value of the preferred issue.
B)
The firm’s corporate tax rate.
C)
The preferred stock’s dividend rate.


The corporate tax rate is not a relevant factor when calculating the cost of preferred stock.
The cost of preferred stock, kps is expressed as:
kps = Dps / P
where:
Dps = divided per share = dividend rate × stated par value
P = market price
作者: prashantsahni    时间: 2012-3-29 11:33

The after-tax cost of preferred stock is always:
A)
equal to the before-tax cost of preferred stock.
B)
less than the before-tax cost of preferred stock.
C)
higher than the cost of common shares.


The after-tax cost of preferred stock is equal to the before-tax cost of preferred stock, because preferred stock dividends are not tax deductible. The cost of preferred shares is usually higher than the cost of debt, but less than the cost of common shares.
作者: prashantsahni    时间: 2012-3-29 11:33

Justin Lopez, CFA, is the Chief Financial Officer of Waterbury Corporation. Lopez has just been informed that the U.S. Internal Revenue Code may be revised such that the maximum marginal corporate tax rate will be increased. Since Waterbury’s taxable income is routinely in the highest marginal tax bracket, Lopez is concerned about the potential impact of the proposed change. Assuming that Waterbury maintains its target capital structure, which of the following is least likely to be affected by the proposed tax change?
A)
Waterbury’s after-tax cost of noncallable, nonconvertible preferred stock.
B)
Waterbury’s return on equity (ROE).
C)
Waterbury’s after-tax cost of corporate debt.


Corporate taxes do not affect the cost of preferred stock to the issuing firm. Waterbury’s after-tax cost of debt, and consequently, its weighted average cost of capital will decrease because the tax savings on interest will increase. Also, since taxes impact net income, Waterbury’s ROE will be affected by the change.
作者: prashantsahni    时间: 2012-3-29 11:33

Which of the following statements is most accurate regarding a firm’s cost of preferred shares? A firm’s cost of preferred stock is:
A)
the dividend yield on the firm’s newly-issued preferred stock.
B)
the market price of the preferred shares as a percentage of its issuance price.
C)
approximately equal to the market price of the firm’s debt as a percentage of the market price of its common shares.


The newly-issued preferred shares of most companies generally sell at par. As such, the dividend yield on a firm’s newly-issued preferred shares is the market’s required rate of return. The yield on a BBB corporate bond reflects a pre-tax cost of debt. Both remaining choices make no sense.
作者: prashantsahni    时间: 2012-3-29 11:34

Axle Corporation earned £3.00 per share and paid a dividend of £2.40 on its common stock last year. Its common stock is trading at £40 per share. Axle is expected to have a return on equity of 15%, an effective tax rate of 34%, and to maintain its historic payout ratio going forward. In estimating Axle’s after-tax cost of capital, an analyst’s estimate of Axle’s cost of common equity would be closest to:
A)
8.8%.
B)
9.0%.
C)
9.2%.


We can estimate the company’s expected growth rate as ROE × (1 − payout ratio): g = 15% × (1 − 2.40/3.00) = 3%
The expected dividend next period is then £2.40(1.03) = £2.47. Based on dividend discount model pricing, the required return on equity is 2.47 / 40 + 3% = 9.18%.
作者: prashantsahni    时间: 2012-3-29 11:34

A $100 par, 8% preferred stock is currently selling for $80. What is the cost of preferred equity?
A)
10.0%.
B)
10.8%.
C)
8.0%.


kps = $8 / $80 = 10%
作者: prashantsahni    时间: 2012-3-29 11:35

The expected dividend one year from today is $2.50 for a share of stock priced at $22.50. The long-term growth in dividends is projected at 8%. The cost of common equity is closest to:
A)
15.6%.
B)
18.0%.
C)
19.1%.


Kce = ( D1 / P0) + g
Kce = [ 2.50 / 22.50 ] + 0.08 = 0.19111, or 19.1%
作者: prashantsahni    时间: 2012-3-29 11:35

The cost of preferred stock is equal to the preferred stock dividend:
A)
divided by the market price.
B)
divided by its par value.
C)
multiplied by the market price.


The cost of preferred stock, kps, is Dps ÷ price.
作者: prashantsahni    时间: 2012-3-29 11:35

The expected annual dividend one year from today is $2.50 for a share of stock priced at $25. What is the cost of equity if the constant long-term growth in dividends is projected to be 8%?
A)
18%.
B)
19%.
C)
15%.


Ks = (D1 / P0) + g = (2.5/25) + 0.08 = 0.18 or 18%.
作者: prashantsahni    时间: 2012-3-29 11:35

A company has $5 million in debt outstanding with a coupon rate of 12%. Currently the YTM on these bonds is 14%. If the tax rate is 40%, what is the after tax cost of debt?
A)
7.2%.
B)
5.6%.
C)
8.4%.


(0.14)(1 - 0.4)
作者: prashantsahni    时间: 2012-3-29 11:36

A firm has $4 million in outstanding bonds that mature in four years, with a fixed rate of 7.5% (assume annual payments). The bonds trade at a price of $98 in the open market. The firm’s marginal tax rate is 35%. Using the bond-yield plus method, what is the firm’s cost of equity risk assuming an add-on of 4%?
A)
12.11%.
B)
11.50%.
C)
13.34%.


If the bonds are trading at $98, the required yield is 8.11%, and the market value of the issue is $3.92 million. To calculate this rate using a financial calculator (and figuring the rate assuming a $100 face value for each bond), N = 4; PMT = 7.5 = (0.075 × 100); FV = 100; PV = -98; CPT → I/Y = 8.11. By adding the equity risk factor of 4%, we compute the cost of equity as 12.11%.
作者: prashantsahni    时间: 2012-3-29 11:36

Which of the following statements about the cost of capital is CORRECT?
A)
Ideally, historical measures of the component costs from prior financing should be used in estimating the appropriate weighted average cost of capital.
B)
The cost of issuing new equity could possibly be lower than the cost of retained earnings if the market risk premium and risk-free rate decline by a substantial amount.
C)
In the weighted average cost of capital calculation, the cost of preferred stock must be adjusted for the cost to issue new preferred stock.


The marginal cost of capital will increase or stay the same as more capital is raised. Marginal costs of capital, not historical costs, should be used in estimating the weighted average cost of capital.
作者: prashantsahni    时间: 2012-3-29 11:37

The after-tax cost of debt is:
A)
8.0%.
B)
7.2%.
C)
9.1%.


N = 40; PMT = 50; FV = 1,000; PV = 849.54; Compute i = 6%, double = 12%, now (12)(1 − 0.4) = 7.2%.
The cost of equity using the capital asset pricing model (CAPM) approach and the discounted cash flow approach is:
CAPMDiscounted Cash Flow
A)
16.0%16.0%
B)
16.0%15.4%
C)
16.6%15.4%

CAPM = 10 + (5)(1.2) = 16%.
Discounted Cash Flow: D1 = 2(1.08) = 2.16, now (2.16 / 27) + 0.08 = 16%
作者: prashantsahni    时间: 2012-3-29 11:37

A company has the following data associated with it:What is the after tax cost of debt capital and after tax cost of preferred stock capital?

Debt CapitalPreferred Stock Capital
A)
4.2%6.3%
B)
4.5%5.6%
C)
4.2%5.6%


Debt
N = 20; FV = 1,000; PMT = 60; PV = -894; CPT → I = 7%
kd = (7%)(1 − 0.4) = 4.2%
Preferred Stock
kps = Dps / P
kps = 5 / 90 = 5.56%

What is the weighted average cost of capital (WACC)?
A)
9.2%.
B)
10.3%.
C)
8.5%.


kce = (D1 / P0) + g
kce = 2 / 45 + 0.08 = 0.1244 = 12.44%
WACC = (0.4)(4.2) + (0.1)(5.6) + (0.5)(12.4) = 8.5%
作者: prashantsahni    时间: 2012-3-29 11:38

A firm has $3 million in outstanding 10-year bonds, with a fixed rate of 8% (assume annual payments). The bonds trade at a price of $92 per $100 par in the open market. The firm’s marginal tax rate is 35%. What is the after-tax component cost of debt to be used in the weighted average cost of capital (WACC) calculations?
A)
6.02%.
B)
9.26%.
C)
5.40%.


If the bonds are trading at $92 per $100 par, the required yield is 9.26%, and the market value of the issue is $2.76 million.
The equivalent after-tax cost of this financing is: 9.26% (1 – 0.35) = 6.02%.
作者: prashantsahni    时间: 2012-3-29 11:38

Genoa Corp. is estimating its weighted average cost of capital (WACC). They have several pieces of data to consider. The firm pays 40% of its earnings out in dividends. The return on equity (ROE) is 15%. Last year’s earnings were $5.00 per share and the dividend was just paid to shareholders. The current price of shares is $42.00. Genoa's 8% coupon bonds have a yield to maturity of 7.5%. The firm's tax rate is 30%.The cost of common equity is closest to:
A)
13.76%.
B)
16.14%.
C)
14.19%.

ROE × retention ratio = growth rate.
15% × (1 – 0.40) = 9%
D0 = $5.00 × 0.40 = $2.00
[$2.00(1.09) / $42.00] + 0.09 = 14.19%

The after-tax cost of debt is closest to:
A)
7.5%.
B)
5.3%.
C)
5.6%.


7.5 × (1 − 0.3) = 5.25%
作者: prashantsahni    时间: 2012-3-29 11:38

Julius, Inc., is in a 40% marginal tax bracket. The firm can raise as much capital as needed in the bond market at a cost of 10%. The preferred stock has a fixed dividend of $4.00. The price of preferred stock is $31.50. The after-tax costs of debt and preferred stock are closest to:
Debt Preferred stock
A)
10.0% 7.6%
B)
6.0% 12.7%
C)
6.0% 7.6%


After-tax cost of debt = 10% × (1 – 0.4) = 6%.
Cost of preferred stock = $4 / $31.50 = 12.7%.
作者: kim226    时间: 2012-3-29 11:39

If central bank actions caused the risk-free rate to increase, what is the most likely change to cost of debt and equity capital?
A)
Both decrease.
B)
One increase and one decrease.
C)
Both increase.


An increase in the risk-free rate will cause the cost of equity to increase. It would also cause the cost of debt to increase. In either case, the nominal cost of capital is the risk-free rate plus the appropriate premium for risk.
作者: kim226    时间: 2012-3-29 11:39

The following information applies to a corporation:
If the risk-free rate is 6% and the expected return on the market portfolio is 14%, the company’s after-tax weighted average cost of capital is closest to:
A)
12.1%.
B)
10.5%.
C)
11.2%.


ks = RFR + β(Rm − RFR)
= 6% + 1.125(14% − 6%) = 15%
WACC = [D/(D + E)] × kd(1 − t) + [E/(D + E)] × ks
= (100/300)(9%)(1 − 0.3) + (200/300)(15%) = 12.1%
作者: kim226    时间: 2012-3-29 11:40

A company’s outstanding 20-year, annual-pay 6% coupon bonds are selling for $894. At a tax rate of 40%, the company’s after-tax cost of debt capital is closest to:
A)
4.2%.
B)
5.1%
C)
7.0%

Pretax cost of debt: N = 20; FV = 1000; PV = −894; PMT = 60; CPT → I/Y = 7%
After-tax cost of debt: kd = (7%)(1−0.4) = 4.2%
作者: kim226    时间: 2012-3-29 11:40

Degen Company is considering a project in the commercial printing business. Its debt currently has a yield of 12%. Degen has a leverage ratio of 2.3 and a marginal tax rate of 30%. Hodgkins Inc., a publicly traded firm that operates only in the commercial printing business, has a marginal tax rate of 25%, a debt-to-equity ratio of 2.0, and an equity beta of 1.3. The risk-free rate is 3% and the expected return on the market portfolio is 9%. The appropriate WACC to use in evaluating Degen’s project is closest to:
A)
8.9%.
B)
8.6%.
C)
9.2%.


Hodgkins’ asset beta:

We are given Degen’s leverage ratio (assets-to-equity) as equal to 2.3. If we assign the value of 1 to equity (A/E = 2.3/1), then debt (and the debt-to-equity ratio) must be 2.3 − 1 = 1.3.
Equity beta for the project:
βPROJECT = 0.52[1 + (1 − 0.3)(1.3)] = 0.9932
Project cost of equity = 3% + 0.9932(9% − 3%) = 8.96%
Degen’s capital structure weight for debt is 1.3/2.3 = 56.5%, and its weight for equity is 1/2.3 = 43.5%.
The appropriate WACC for the project is therefore:
0.565(12%)(1 − 0.3) + 0.435(8.96%) = 8.64%.
作者: kim226    时间: 2012-3-29 11:40

Utilitarian Co. is looking to expand its appliances division. It currently has a beta of 0.9, a D/E ratio of 2.5, a marginal tax rate of 30%, and its debt is currently yielding 7%. JF Black, Inc. is a publicly traded appliance firm with a beta of 0.7, a D/E ratio of 3, a marginal tax rate of 40%, and its debt is currently yielding 6.8%. The risk-free rate is currently 5% and the expected return on the market portfolio is 9%. Using this data, calculate Utilitarian’s weighted average cost of capital for this potential expansion.
A)
5.7%.
B)
4.2%.
C)
7.1%.


作者: kim226    时间: 2012-3-29 11:41

A publicly traded company has a beta of 1.2, a debt/equity ratio of 1.5, ROE of 8.1%, and a marginal tax rate of 40%. The unlevered beta for this company is closest to:
A)
1.071.
B)
0.832.
C)
0.632.


The unlevered beta for this company is calculated as:
作者: kim226    时间: 2012-3-29 11:41

Affluence Inc. is considering whether to expand its recreational sports division by embarking on a new project. Affluence’s capital structure consists of 75% debt and 25% equity and its marginal tax rate is 30%. Aspire Brands is a publicly traded firm that specializes in recreational sports products. Aspire has a debt-to-equity ratio of 1.7, a beta of 0.8, and a marginal tax rate of 35%. Using the pure-play method with Aspire as the comparable firm, the project beta Affluence should use to calculate the cost of equity capital for this project is closest to:
A)
0.38.
B)
0.58.
C)
1.18.


The unlevered asset beta is:

Affluence’s debt-to-equity ratio = 0.75/0.25 = 3. To calculate the project beta, re-lever the asset beta using Affluence’s debt-to-equity ratio and marginal tax rate:
作者: kim226    时间: 2012-3-29 11:41

Tony Costa, operations manager of BioChem Inc., is exploring a proposed product line expansion. Costa explains that he estimates the beta for the project by seeking out a publicly traded firm that is engaged exclusively in the same business as the proposed BioChem product line expansion. The beta of the proposed project is estimated from the beta of that firm after appropriate adjustments for capital structure differences. The method that Costa uses is known as the:
A)
build-up method.
B)
pure-play method.
C)
accounting method.


The method used by Costa is known as the pure-play method. The method entails selection of the pure-play equity beta, unlevering it using the pure-play company’s capital structure, and re-levering using the subject company’s capital structure.
作者: kim226    时间: 2012-3-29 11:42

Jamal Winfield is an analyst with Stolzenbach Technologies, a major computer services company based in the U.S. Stolzenbach’s management team is considering opening new stores in Mexico, and wants to estimate the cost of equity capital for Stolzenbach’s investment in Mexico. Winfield has researched bond yields in Mexico and found that the yield on a Mexican government 10-year bond is 7.7%. A similar maturity U.S. Treasury bond has a yield of 4.6%. In the most recent year, the standard deviation of Mexico's All Share Index stock index and the S&P 500 index was 38% and 20% respectively. The annualized standard deviation of the Mexican dollar-denominated 10-year government bond over the last year was 26%. Winfield has also determined that the appropriate beta to use for the project is 1.25, and the market risk premium is 6%. The risk free interest rate is 4.2%. What is the appropriate country risk premium for Mexico and what is the cost of equity that Winfield should use in his analysis?
Country Risk Premium for Mexico Cost of Equity for Project
A)
4.53% 17.36%
B)
5.89% 17.36%
C)
4.53% 19.06%


CRP = Sovereign Yield Spread(Annualized standard deviation of equity index ÷ Annualized standard deviation of sovereign bond market in terms of the developed market currency)

= (0.077 – 0.046)(0.38 ÷ 0.26) = 0.0453, or 4.53%


Cost of equity = RF + β[E(RMKT) – RF + CRP] = 0.042 + 1.25[0.06 + 0.0453] = 0.1736 = 17.36% Note that you are given the market risk premium, which equals E(RMKT) – RF.
作者: kim226    时间: 2012-3-29 11:42

Jeffery Marian, an analyst with Arlington Machinery, is estimating a country risk premium to include in his estimate of the cost of equity for a project Arlington is starting in India. Marian has compiled the following information for his analysis:  
The estimated country risk premium for India based on Marian’s research is closest to:
A)
2.6%.
B)
4.3%.
C)
5.8%.


CRP = Sovereign Yield Spread(Annualized standard deviation of equity index ÷ Annualized standard deviation of sovereign bond market in terms of the developed market currency)
= (0.072 – 0.046)(0.40/0.24) = 0.043, or 4.3%.
作者: kim226    时间: 2012-3-29 11:42

In order to more accurately estimate the cost of equity for a company situated in a developing market, an analyst should:
A)
use the yield on the sovereign debt of the developing country instead of the risk free rate when using the capital asset pricing model (CAPM).
B)
add a country risk premium to the market risk premium when using the capital asset pricing model (CAPM).
C)
add a country risk premium to the risk-free rate when using the capital asset pricing model (CAPM).


In order to reflect the increased risk when investing in a developing country, a country risk premium is added to the market risk premium when using the CAPM.
作者: kim226    时间: 2012-3-29 11:43

Stolzenbach Technologies has a target capital structure of 60% equity and 40% debt. The schedule of financing costs for the Stolzenbach is shown in the table below:

Amount of New Debt (in millions)
After-tax Cost of Debt
Amount of New Equity (in millions)
Cost of Equity

$0 to $199
4.5%
$0 to $299
7.5%

$200 to $399
5.0%
$300 to $699
8.5%

$400 to $599
5.5%
$700 to $999
9.5%

Stolzenbach Technologies has breakpoints for raising additional financing at both:
A)
$500 million and $700 million.
B)
$400 million and $700 million.
C)
$500 million and $1,000 million.

Stolzenbach will have a break point each time a component cost of capital changes, for a total of three marginal cost of capital schedule breakpoints.
Break pointDebt > $200mm = ($200 million ÷ 0.4) = $500 million
Break pointDebt > $400mm = ($400 million ÷ 0.4) = $1,000 million
Break pointEquity > $300mm = ($300 million ÷ 0.6) = $500 million
Break pointEquity > $700mm = ($700 million ÷ 0.6) = $1,167 million
作者: kim226    时间: 2012-3-29 11:43

Simcox Financial is considering raising additional capital to finance a takeover of one of the firm’s major competitors. Reuben Mellum, an analyst with Simcox, has put together the following schedule of costs related to raising new capital:

Amount of New Debt (in millions)
After-tax Cost of Debt
Amount of New Equity (in millions)
Cost of Equity

$0 to $149
4.2%
$0 to $399
7.5%

$150 to $349
5.0%
$400 to $799
8.5%

Assuming that Simcox has a target debt to equity ratio of 65% equity and 35% debt, what are the marginal cost of capital schedule breakpoints for raising additional debt capital and equity capital, respectively?
Breakpoint for new debt capitalBreakpoint for new equity capital
A)
$428.6 million $533.3 million
B)
$428.6 million $615.4 million
C)
$375.0 million $615.4 million


A breakpoint is calculated as the amount of capital where component cost changes / weight of component in the WACC. The breakpoint for raising new debt capital occurs at ($150 / 0.35) = $428.6 million, and the breakpoint for raising new equity capital occurs at ($400 / 0.65) = $615.4 million.
作者: kim226    时间: 2012-3-29 11:44

Which one of the following statements about the marginal cost of capital (MCC) is most accurate?
A)
The MCC is the cost of the last dollar obtained from bondholders.
B)
A breakpoint on the MCC curve occurs when one of the components in the weighted average cost of capital changes in cost.
C)
The MCC falls as more and more capital is raised in a given period.


A breakpoint is calculated by dividing the amount of capital at which a component's cost of capital changes by the weight of that component in the capital structure.
The marginal cost of capital (MCC) is defined as the weighted average cost of the last dollar raised by the company. Typically, the marginal cost of capital will increase as more capital is raised by the firm. The marginal cost of capital is the weighted average rate across all sources of long-term financings—bonds, preferred stock, and common stock—when the final dollar was obtained, regardless of its specific source.
作者: kim226    时间: 2012-3-29 11:44

A North American investment society held a panel discussion on the topics of capital costs and capital budgeting. Which of the following comments made during this discussion is the least accurate?
A)
An increase in the after-tax cost of debt may occur at a break point.
B)
A project’s internal rate of return decreases when a breakpoint is reached.
C)
Any given project’s NPV will decline when a breakpoint is reached.


The internal rate of return is independent of the firm’s cost of capital. It is a function of the amount and timing of a project’s cash flows.
作者: kim226    时间: 2012-3-29 11:44

The before-tax cost of debt for Hardcastle Industries, Inc. is currently 8.0%, but it will increase to 8.25% when debt levels reach $600 million. The debt-to-total assets ratio for Hardcastle is 40% and its capital structure is composed of debt and common equity only. If Hardcastle changes its target capital structure to 50% debt / 50% equity, which of the following describes the effect on the level of new investment at which the cost of debt will increase? The level will:
A)
decrease.
B)
change, but can either increase or decrease.
C)
increase.


A break point refers to a level of new investment at which a component’s cost of capital changes. The formula for break point is:

As indicated, as the weight of a capital component in the capital structure increases, the break point at which a change in the component’s cost will decline. No computation is necessary, but when Hardcastle has 40% debt, the breakpoint is $600,000,000 / 0.4 = $1.5 billion. If Hardcastle’s debt increases to 50%, the breakpoint will decline to $600,000,000 / 0.5 = $1.2 billion.
作者: kim226    时间: 2012-3-29 11:45

Which of the following is used to illustrate a firm’s weighted average cost of capital (WACC) at different levels of capital?
A)
Schedule of marginal capital break points.
B)
Cost of capital component schedule.
C)
Marginal cost of capital schedule.


The marginal cost of capital schedule shows the WACC at different levels of capital investment. It is usually upward sloping and is a function of a firm’s capital structure and its cost of capital at different levels of total capital investment.
作者: kim226    时间: 2012-3-29 11:46

The most accurate way to account for flotation costs when issuing new equity to finance a project is to:
A)
increase the cost of equity capital by dividing it by (1 – flotation cost).
B)
adjust cash flows in the computation of the project NPV by the dollar amount of the flotation costs.
C)
increase the cost of equity capital by multiplying it by (1 + flotation cost).


Adjusting the cost of equity for flotation costs is incorrect because doing so entails adjusting the present value of cash flows by a fixed percentage over the life of the project. In reality, flotation costs are a cash outflow that occurs at the initiation of a project. Therefore, the correct way to account for flotation costs is to adjust the cash flows in the computation of project NPV, not the cost of equity. The dollar amount of the flotation cost should be considered an additional cash outflow at initiation of the project.
作者: kim226    时间: 2012-3-29 11:46

Meredith Suresh, an analyst with Torch Electric, is evaluating two capital projects.  Project 1 has an initial cost of $200,000 and is expected to produce cash flows of $55,000 per year for the next eight years.  Project 2 has an initial cost of $100,000 and is expected to produce cash flows of $40,000 per year for the next four years.  Both projects should be financed at Torch’s weighted average cost of capital.  Torch’s current stock price is $40 per share, and next year’s expected dividend is $1.80.  The firm’s growth rate is 5%, the current tax rate is 30%, and the pre-tax cost of debt is 8%.  Torch has a target capital structure of 50% equity and 50% debt.  If Torch takes on either project, it will need to be financed with externally generated equity which has flotation costs of 4%.  
Suresh is aware that there are two common methods for accounting for flotation costs.  The first method, commonly used in textbooks, is to incorporate flotation costs directly into the cost of equity.  The second, and more correct approach, is to subtract the dollar value of the flotation costs from the project NPV. If Suresh uses the cost of equity adjustment approach to account for flotation costs rather than the correct cash flow adjustment approach, will the NPV for each project be overstated or understated?
Project 1 NPVProject 2 NPV
A)
UnderstatedOverstated
B)
UnderstatedUnderstated
C)
OverstatedOverstated

The incorrect method of accounting for flotation costs spreads the flotation cost out over the life of the project by a fixed percentage that does not necessarily reflect the present value of the flotation costs. The impact on project evaluation depends on the length of the project and magnitude of the flotation costs, however, for most projects that are shorter, the incorrect method will overstate NPV, and that is exactly what we see in this problem.
Correct method of accounting for flotation costs:

After-tax cost of debt = 8.0% (1-0.30) = 5.60%
Cost of equity = ($1.80 / $40.00) + 0.05 = 0.045 + 0.05 = 9.50%
WACC = 0.50(5.60%) + 0.50(9.50%) = 7.55%
Flotation costs Project 1 = $200,000 × 0.5 × 0.04 = $4,000
Flotation costs Project 2 = $100,000 × 0.5 × 0.04 = $2,000

NPV Project 1 = -$200,000 - $4,000 + (N = 8, I = 7.55%, PMT = $55,000, FV = 0 →CPT PV = $321,535) = $117,535
NPV Project 2 = -$100,000 - $2,000 + (N = 4, I = 7.55%, PMT = $40,000, FV = 0 →CPT PV = $133,823) = $31,823

Incorrect Adjustment for cost of equity method for accounting for flotation costs:

After-tax cost of debt = 8.0% (1-0.30) = 5.60%
Cost of equity = [$1.80 / $40.00(1-0.04)] + 0.05 = 0.0469 + 0.05 = 9.69%
WACC = 0.50(5.60%) + 0.50(9.69%) = 7.65%

NPV Project 1 = -$200,000 + (N = 8, I = 7.65%, PMT = $55,000, FV = 0 →CPT PV = $320,327) = $120,327
NPV Project 2 = -$100,000+ (N = 4, I = 7.65%, PMT = $40,000, FV = 0 →CPT PV = $133,523) = $33,523
作者: kim226    时间: 2012-3-29 11:46

Cullen Casket Company is considering a project that requires a $175,000 cash outlay and is expected to produce cash flows of $65,000 per year for the next four years. Cullen’s tax rate is 40% and the before-tax cost of debt is 9%. The current share price for Cullen stock is $32 per share and the expected dividend next year is $1.50 per share. Cullen’s expected growth rate is 5%. Cullen finances the project with 70% newly issued equity and 30% debt, and the flotation costs for equity are 4.5%. What is the dollar amount of the flotation costs attributable to the project, and that is the NPV for the project, assuming that flotation costs are accounted for correctly?
Dollar amount
of floatation costs		NPV of project
A)
$7,875$30,510
B)
$5,513$32,872
C)
$5,513$30,510


In order to determine the discount rate, we need to calculate the WACC.
After-tax cost of debt = 9.0% (1 – 0.40) = 5.40%
Cost of equity = ($1.50 / $32.00) + 0.05 = 0.0469 + 0.05 = 0.0969, or 9.69%
WACC = 0.70(9.69%) + 0.30(5.40%) = 8.40%
Since the project is financed with 70% newly issued equity, the amount of equity capital raised is 0.70 × $175,000 = $122,500Flotation costs are 4.5 percent, which equates to a dollar flotation cost of $122,500 × 0.045 = $5,512.50.
作者: kim226    时间: 2012-3-29 11:47

Nippon Post Corporation (NPC), a Japanese software development firm, has a capital structure that is comprised of 60% common equity and 40% debt. In order to finance several capital projects, NPC will raise USD1.6 million by issuing common equity and debt in proportion to its current capital structure. The debt will be issued at par with a 9% coupon and flotation costs on the equity issue will be 3.5%. NPC’s common stock is currently selling for USD21.40 per share, and its last dividend was USD1.80 and is expected to grow at 7% forever. The company’s tax rate is 40%. NPC’s WACC based on the cost of new capital is closest to:
A)
9.6%.
B)
13.1%.
C)
11.8%.


kd = 0.09(1 – 0.4) = 0.054 = 5.4%
kce = [(1.80 × 1.07) / 21.40] + 0.07 = 0.16 = 16.0%
WACC = 0.6(16.0%) + 0.4(5.4%) = 11.76%
Flotation costs, treated correctly, have no effect on the cost of equity component of the WACC.
作者: terpsichorefan    时间: 2013-4-24 16:07

thanks for sharing



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