Exam 11: Calculating the Cost of Capital

TJ Co.stock has a beta of 1.45,the current risk-free rate is 5.75,and the expected return on the market is 14 percent.What is TJ Co's cost of equity?

Crab Cakes Ltd.has 5 million shares of stock outstanding selling at $15 per share and an issue of $10 million in 10 percent,annual coupon bonds with a maturity of 25 years,selling at 97 percent of par ($1,000).If Crab Cakes' weighted average tax rate is 30 percent,its next dividend is expected to be $1.00 per share,and all future dividends are expected to grow at 5 percent per year,indefinitely,what is its WACC?

KatyDid Clothes has a $150 million ($1,000 face value)15-year bond issue selling for 86 percent of par that carries a coupon rate of 8 percent,paid semi-annually.What would be KatyDid's before-tax component cost of debt?

Which of the following statements is correct?

JLP Industries has 6.5 million shares of common stock outstanding with a market price of $20.00 per share.The company also has outstanding preferred stock with a market value of $10 million,and 25,000 bonds outstanding,each with face value $1,000 and selling at 90 percent of par value.The cost of equity is 14 percent,the cost of preferred stock is 10 percent,and the cost of debt is 6.25 percent.If JLP's tax rate is 34 percent,what is the WACC?

Town Crier has 10 million shares of common stock outstanding,2 million shares of preferred stock outstanding,and 10 thousand bonds.If the common shares are selling for $28 per share,the preferred shares are selling for $15.50 per share,and the bonds are selling for 97 percent of par,what would be the weight used for debt in the computation of Town Crier's WACC?

Suppose that Hanna Nails,Inc.'s capital structure features 45 percent equity,55 percent debt,and that its before-tax cost of debt is 5 percent,while its cost of equity is 9 percent.If the appropriate weighted average tax rate is 40 percent,what will be Hanna Nails' WACC?