A 12-year, 12% semiannual coupon, $1,000 par
Subject: Business / Finance
Question
1. A 12-year, 12% semiannual coupon, $1,000 par value bond is selling for $1,200. It can be called after 6 years at $1,050.
a) Is the firm going to call the bond? Are we going to have Yield to call (YTC) or Yield to maturity (YTM) on the bond?
b) How much is the YTC or YTM?
2. A stock has a Non-constant growth of 20% for Year 0 to Year 1, 25% for Year 1 to Year 2, 15% for Year 2 to Year 3, and then long-run constant g = 6%. Do = $2. What is the current stock price? Required rate of return = 12%
3. The preferred stock pays a dividend of 10% on a par value of $110. The required rate of return is 8%. What is the value of the preferred stock of the firm?
4. The firm ABZ has D0 = $5; P0 = $50; g = 5%, Flotation cost =2.23%. What is the cost of retained earnings for the firm?
5. A firm raises $2 Million through debt, $3 Million through common stock and $500,000 through preferred stock. The cost of debt is 8%, the cost of preferred stock is 9% and cost of common stock is 11%. The firm is in the 35% tax bracket. What is the Weighted Average Cost of Capital (WACC) for the firm?
