Basic Concepts in Finance including WACC, Bond Valuation & more
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1. Legacy Company common stock is currently selling for $20 per share. Security analysts at Toes Analysts' have assigned the following probability distribution to the price of (and rate of return on)...
2. Legacy Company stock one year from now:
Price Rate of Return Probability
$16 -20% 0.25
20 0% 0.30
24 +20% 0.25
28 +40% 0.20
Assuming that Legacy Company is not expected to pay any dividends during the coming year, determine the expected rate of return on Legacy Company Stock.
2. Legacy Company common stock is currently selling for $20 per share. Security analysts at Toes Analysts' have assigned the following probability distribution to the price of (and rate of return on)...
Legacy Company stock one year from now:
Price Rate of Return Probability
$16 -20% 0.25
20 0% 0.30
24 +20% 0.25
28 +40% 0.20
Assuming that Legacy Company is not expected to pay any dividends during the coming year, determine the coefficient of variation for the rate of return on Legacy Company stock.
3. Calculate the after-tax cost of preferred stock for Bosch Company, which is planning to sell $100 million of $3.25 cumulative preferred stock to the public at a price of $25 per share. Flotation costs are $1.00 per share. The company has a marginal income tax rate of 40%.
4. The Reno Valley common stock has a beta of 0.80. If the current risk-free rate is 6.5% and the expected return on the stock market as a whole is 14.62%, determine the cost of equity capital for the firm (using the CAPM).
5. The following financial information is available on Mercury Company:
Current per share market price $48.00
Current (t = 0) per share dividend $3.50
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Solution Summary
Solutions depict the steps to estimate expected return and coefficient of variation with the help of information given. It also helps to calculate the cost of equity and after tax cost of preferred stock.
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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