Problem 9-2After-Tax

Problem 9-2 

After-Tax Cost of Debt

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LL Incorporated’s currently outstanding 7%

coupon bonds have a yield to maturity of 14%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is LL’s after-tax cost of debt? Round your answer to two decimal places.

Problem 9-4 

Cost of Preferred Stock with Flotation Costs

Burnwood Tech plans to issue some $60 par preferred stock with a 7% dividend. A similar stock is selling on the market for $55. Burnwood must pay flotation costs of 5% of the issue price. What is the cost of the preferred stock? Round your answer to two decimal places.

Problem 9-5 

Cost of Equity: Dividend Growth

Summerdahl Resort’s common stock is currently trading at $22.00 a share. The stock is expected to pay a dividend of $1.75 a share at the end of the year (D1 = $1.75), and the dividend is expected to grow at a constant rate of 8% a year. What is the cost of common equity? Round your answer to two decimal places.

Problem 9-6 

Cost of Equity: CAPM

Booher Book Stores has a beta of 0.7. The yield on a 3-month T-bill is 4.5% and the yield on a 10-year T-bond is 6%. The market risk premium is 6%, and the return on an average stock in the market last year was 12%. What is the estimated cost of common equity using the CAPM? Round your answer to two decimal places.

Problem 9-7 

WACC

Shi Import-Export’s balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Shi’s tax rate is 35%, rd = 6%, rps = 7.7%, and rs = 13%. If Shi has a target capital structure of 30% debt, 5% preferred stock, and 65% common stock, what is its WACC? Round your answer to two decimal places.

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