5. Given an optimal capital structure that is 50% debt and 50% common stock, calculate the weighted average cost of capital for Stone Corp given the following additional information: Bond coupon rate. Bond yield to maturity. Dividend, expected Price, common Growth rate Corporate tax rate............ A. less than 9.5%. B. more than 9.5% and less than 10.25%. C. more than 10.25% and less than 11%. D. more than 11%. 14% 10% $5 $100 8% 30%

5. Given an optimal capital structure that is 50% debt and 50% common stock, calculate the weighted average cost of capital for Stone Corp given the following additional information: Bond coupon rate. Bond yield to maturity. Dividend, expected Price, common Growth rate Corporate tax rate............ A. less than 9.5%. B. more than 9.5% and less than 10.25%. C. more than 10.25% and less than 11%. D. more than 11%. 14% 10% $5 $100 8% 30%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 3Q

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1. Using capital asset pricing model, compute for the cost of equity with risk-free rate of 4%, market return on 8%, beta of 1.5 and tax rate of 30%. 2. With risk-free rate of 5%, beta of 1.5, market return of 8%, prevailing credit spread (rate applied on debt on top of risk-free rate) of 3%, tax rate of 30% and equity ratio of 30%, compute for the weighted average cost of capital. 3. The appropriate WACC of a company is 8%. With risk-free rate of 4%, market return of 10%, prevailing credit spread of 2%, tax rate of 30% and equity ratio of 40%, compute the beta.
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