BETA OF PORTFOLIO, COST OF CAPITAL RELATED QUESTIONS :

QUESTIONS :

 

13-11 :

 

You own a portfolio invested 35% in stock Q, 25% in stock R, 30% in stock S and 10% in stock T. The beta of these syocks are 0.84, 1.17, 1.11 and 1.36 respective\ly. What is the beta of portfolio?

 

14-6 :

 

Mudvayne, Inc, is trying to determine its cost of debt. The firm has a debt issue outstanding with 18 years maturity that is quoted  at 107 percent of face value. The issue makes semi-annual payments and has a embedded cost of 6% annually. What is company’s pre tax cost of debt? If the tax rate is 35%, what is the aftertax cost of debt?

 

14-9 : 

 

Mullineuox Corporation has a target capital structure of 60% common stock, 5% preferred stock, and 35% debt.Its cost of equity is 12%, the cost of preferred stock is 5%, and the pretax cost of debt is 7%. The relevant tax rate is 35%.

a. What is company’s WACC?

b. The company president has approached you about capital structure. He wants to know why the company doesn’t use more preferred stock financing because it costs less than the debt. What would you tell the president?