FIN Week Quiz 2015 Solution Sheet done in june 2015

  

QUESTION 1If the market value of debt is $155,527, market value of preferred stock is $78,829, and market value of common equity is 312,100, what is the weight of preferred stock? ?Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer.QUESTION 2 Several years ago, the ABC Company sold a $1,000 par value bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $925 and the companys tax rate is 40%. What is the after-tax cost of debt???????QUESTION 3ABC Industries will pay a dividend of $2 next year on their common stock. The company predicts that the dividend will increase by 7 percent each year indefinitely. What is the dividend yield if the stock is selling for $29 a share??Enter your answer in percentages rounded off to two decimal points. DO not enter % in the answer.QUESTION 4The 8 percent annual coupon bonds of the ABC Co. are selling for $880.76. The bonds mature in 10 years. The bonds have a par value of $1,000 and payments are made semi-annually? What is the before-tax cost of debt??Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer.QUESTION 5The 7 percent annual coupon bonds of the ABC Co. are selling for $950.41. The bonds mature in 8 years. The bonds have a par value of $1,000 and payments are made semi-annually. If the tax rate is 35%, what is the after-tax cost of debt??Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer.QUESTION 6ABC Inc.’s perpetual preferred stock sells for $69.4 per share, and it pays an $8.1 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of $4 per share. What is the company’s cost of preferred stock for use in calculating the WACC??Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.QUESTION 7The 8.5 percent annual coupon bonds of the ABC Co. are selling for $1,179. The bonds mature in 12 years. The bonds have a par value of $1,000. If the tax rate is 30%, what is the after-tax cost of debt??Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer.QUESTION 8ABC, Inc., has 113 shares of common stock outstanding at a price of $97 a share. They also have 397 shares of preferred stock outstanding at a price of $54 a share. There are 414, 8 percent bonds outstanding that are priced at $33. The bonds mature in 16 years and pay interest semiannually. What is the capital structure weight of the preferred stock??Enter your answer as a percentage rounded off to two decimal points. Do not enter % in the answer.QUESTION 9The 8 percent annual coupon bonds of the ABC Co. are selling for $1,080.69. The bonds mature in 10 years. The bonds have a par value of $1,000. What is the before-tax cost of debt??Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer.QUESTION 10The before-tax cost of debt is 9 percent. What is the after-tax cost of debt if the tax rate is 48 percent? ?Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.QUESTION 11ABC Industries will pay a dividend of $3 next year on their common stock. The company predicts that the dividend will increase by 7 percent each year indefinitely. What is the firms cost of equity if the stock is selling for $21 a share??Enter your answer in percentages rounded off to two decimal points. DO not enter % in the answer.QUESTION 12The ABC Company has a cost of equity of 23.1 percent, a pre-tax cost of debt of 9.8 percent, and a tax rate of 30 percent. What is the firms weighted average cost of capital if the proportion of debt is 20.4%??Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.QUESTION 13You were hired as a consultant to ABC Company, whose target capital structure is 35% debt, 15% preferred, and 50% common equity. The before-tax cost of debt is 6.50%, the yield on the preferred is 6.00%, the cost of common stock is 11.25%, and the tax rate is 40%. What is the WACC??Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.QUESTION 14If the market value of debt is $114,756, market value of preferred stock is $103,266, and market value of common equity is 175,648, what is the weight of common equity? ?Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer.QUESTION 15If last dividend = $6.3, g = 4.5%, and P0 = $75.6, what is the stocks expected total return for the coming year??Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.QUESTION 16A stock is expected to pay a dividend of $1.6 at the end of the year. The required rate of return is rs = 9.6%, and the expected constant growth rate is g = 7.1%. What is the stock’s current price??Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer.QUESTION 17If D1 = $2.8, g (which is constant) = 3.3%, and P0 = $73.9, what is the stocks expected total return for the coming year??Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.QUESTION 18A stock just paid a dividend of $1.3. The required rate of return is 17.9%, and the constant growth rate is 5%. What is the current stock price?Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer.QUESTION 19ABCs last dividend paid was $1.4, its required return is 17.5%, its growth rate is 6.1%, and its growth rate is expected to be constant in the future. What is Sorenson’s expected stock price in 7 years, i.e., what is P7??Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer.QUESTION 20ABC is expected to pay a dividend of $4.1 per share at the end of the year. The stock sells for $55 per share, and its required rate of return is 19.5%. The dividend is expected to grow at some constant rate, g, forever. What is the growth rate (i.e. solve for g)??Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.QUESTION 21ABC’s stock has a required rate of return of 15.1%, and it sells for $44 per share. The dividend is expected to grow at a constant rate of 6.9% per year. What is the expected year-end dividend, D1??Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer.QUESTION 22The common stock of Wetmore Industries is valued at $62.8 a share. The company increases their dividend by 5 percent annually and expects their next dividend to be $2.6. What is the required rate of return on this stock??Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.QUESTION 23If D1 = $3.08, g (which is constant) = 2%, and P0 = $37.17, what is the stocks expected dividend yield for the coming year??Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer.QUESTION 24ABC’s last dividend was $3.2. The dividend growth rate is expected to be constant at 31% for 3 years, after which dividends are expected to grow at a rate of 7% forever. If the firm’s required return (rs) is 11%, what is its current stock price (i.e. solve for Po)??Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer.ABC just paid a dividend of D0 = $1.7. Analysts expect the company’s dividend to grow by 31% this year, by 24% in Year 2, and at a constant rate of 6% in Year 3 and thereafter. The required return on this stock is 16%. What is the best estimate of the stocks current market value??Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer.QUESTION 26A stock just paid a dividend of D0 = $2.3. The required rate of return is rs = 12%, and the constant growth rate is g = 5%. What is the current stock price??Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer.QUESTION 27ABC Enterprises’ stock is expected to pay a dividend of $1.8 per share. The dividend is projected to increase at a constant rate of 6.9% per year. The required rate of return on the stock is 16.2%. What is the stock’s expected price 3 years from today (i.e. solve for P3)??Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer.QUESTION 28ABC Inc., is expected to pay an annual dividend of $4.4 per share next year. The required return is 17.5 percent and the growth rate is 4.6 percent. What is the expected value of this stock five years from now?? ?Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer.QUESTION 29The common stock of Connor, Inc., is selling for $64 a share and has a dividend yield of 3.8 percent. What is the dividend amount??Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer.QUESTION 30A stock’s next dividend is expected to be $1.5. The required rate of return on stock is 19.9%, and the expected constant growth rate is 6.2%. What is the stock’s current price??Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer.QUESTION 31ABC Company’s last dividend was $0.8. The dividend growth rate is expected to be constant at 17% for 2 years, after which dividends are expected to grow at a rate of 6% forever. The firm’s required return (rs) is 16%. What is its current stock price (i.e. solve for Po)??Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer.QUESTION 32ABC Enterprises’ stock is currently selling for $60.3 per share. The dividend is projected to increase at a constant rate of 5.3% per year. The required rate of return on the stock is 12%. What is the stock’s expected price 5 years from today (i.e. solve for P5)??Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer.Thank you,