Lecture8练习题for students 财务管理

1. Brook’s Window Shields Inc. is trying to calculate its cost of capital for use in acapital budgeting decision. Mr. Glass, the vice-president of finance, has given you the following information and has asked you to compute the weightedaverage cost of capital.The company currently has outstanding a bond with a 12.2 percent coupon rate and another bond with a 9.5 percent coupon rate. The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield 13.4 percent.The common stock has a price of $58 and an expected dividend (D1) of $5.30per share. The firm’s historical growth rate of earnings an d dividends per share has been 9.5 percent, but security analysts on Wall Street expect this growth to slow to 7 percent in future years.The preferred stock is selling at $54 per share and carries a dividend of $6.75per share. The corporate tax rate is 35 percent. The flotation cost is 2.1 percent of the selling price for preferred stock. The optimum capital structure is 40percent debt, 25 percent preferred stock, and 35 percent common equity in the form of retained earnings.Compute the cost of capital for the individual components in the capitalstructure, and then calculate the weighted average cost of capital.2. A-Rod Manufacturing Company is trying to calculate its cost of capital for use inmaking a capital budgeting decision. Mr. Jeter, the vice-president of finance, has given you the following information and has asked you to compute the weighted average cost of capital.The company currently has outstanding a bond with a 10.6 percent coupon rate and another bond with an 8.2 percent rate. The firm has been informed by itsinvestment banker that bonds of equal risk and credit rating are now selling to yield 11.5 percent. The common stock has a price of $65 and an expecteddividend (D1) of $1.50 per share. The historical growth pattern (g) for dividends is as follows.$1.40/1.54/1.69/1.85Compute the historical growth rate, round it to the nearest whole number, and use it for g.The preferred stock is selling at $85 per share and pays a dividend of $8.50 per share. The corporate tax rate is 40 percent. The flotation cost is 2.6 percent ofthe selling price for preferred stock. The optimum capital structure for the firm is 35 percent debt, 5 percent preferred stock, and 60 percent common equity in the form of retained earnings.Compute the cost of capital for the individual components in the capitalstructure, and then calculate the weighted average cost of capital.3. orthwest Utility Company faces increasing needs for capital. Fortunately, it has anAa3 credit rating. The corporate tax rate is 40 percent. Northwest’s treasurer istrying to determine the corporation’s current weighted average cost of capital in order to assess the profitability of capital budgeting projects.Historically, the corporation’s earnings and dividends per share have increased about 8.2 percent annually and this should continue in the future. Northwest’s common stock is selling at $64 per share, and the company will pay a $6.50 per share dividend (D1).The company’s $96 preferred stock has been yielding 8 percent in the current market. Flotation costs for the company have been estimated by its investment banker to be $6.00 for preferred stock.The company’s optimum capital structure is 55 percent debt, 20 percent preferred stock, and 25 percent common equity in the form of retained earnings. Refer to the following table on bond issues for comparative yields on bonds of equal risk to Northwest.Data on Bond IssuesIssue Moody’sRating PriceYield toMaturityUtilities:Southwest Electric Power––7¼ 2023 ..........Aa2 $ 895.18 8.74% Pacific Bell––7⅜ 2025.................................Aa3 891.25 8.73 Pennsylvania Power & Light––8½2022...........................................................A2 970.66 8.77 Industrials:Johnson & Johnson––6¾ 2023 ....................Aaa 880.24 8.55% Dillard’s Department Stores––71/82023...........................................................A2 960.92 8.22 Marriott Corp.––10 2015 .............................B2 1,035.10 9.77 Compute the answers to the following questions from the information given.a. Cost of debt, K d (use the accompanying table––relate to the utility bondcredit rating for yield)b. Cost of preferred stock, K pc. Cost of common equity in the form of retained earnings, K ed. Weighted average cost of capital。