Explore BrainMass

Explore BrainMass

    Calculating WACC

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    (See attached file for full problem description)

    ---
    Problem 6-3
    Preferred Stock. Preferred Products has issued preferred stock with an $8 annual dividend that
    will be paid in perpetuity.
    a. If the discount rate is 12 percent, at what price should the preferred sell?

    b. At what price should the stock sell 1 year from now?

    c. What is the dividend yield
    capital gains yield
    expected rate of return
    of the stock?

    Problem 6-10
    Stock Values. Integrated Potato Chips paid a $1 per share dividend yesterday. You expect the
    dividend to grow steadily at a rate of 4 percent per year.
    a. What is the expected dividend in each of the next 3 years?

    b. If the discount rate for the stock is 12 percent, at what price will the stock sell?

    c. What is the expected stock price 3 years from now?

    d. If you buy the stock and plan to hold it for 3 years, what payments will you receive?
    What is the present value of those payments? Compare your answer to (b).

    PMT YR1
    PMT YR2
    PMT YR3

    PV of PMTs

    Problem 6-19
    Constant-Growth Model. Here are data on two stocks, both of which have discount rates of 15%:
    Stock A Stock B
    Return on equity 15% 10%
    Earnings per share $2.00 $1.50
    Dividends per share $1.00 $1.00
    Stock A Stock B
    a. What are the dividend payout ratios for each firm?
    b. What are the expected dividend growth rates for each firm?
    c. What is the proper stock price for each firm?

    Problem 12-5
    Calculating WACC. Reactive Industries has the following capital structure. Its corporate tax rate is 35 percent. What is its WACC?

    Security Market Value Required Rate of Return
    Debt $20,000,000 6.00%
    Preferred stock $10,000,000 8.00%
    Common stock $50,000,000 12.00%

    WACC FORMULA
    ---

    © BrainMass Inc. brainmass.com June 3, 2020, 6:21 pm ad1c9bdddf
    https://brainmass.com/statistics/central-tendency/calculating-wacc-57048

    Attachments

    Solution Preview

    (See attached file for full problem description)

    ---
    Problem 6-3
    Preferred Stock. Preferred Products has issued preferred stock with an $8 annual dividend that
    will be paid in perpetuity.
    a. If the discount rate is 12 percent, at what price should the preferred sell?

    b. At what price should the stock sell 1 year from now?

    c. What is the dividend yield
    capital gains yield
    expected rate of return
    of the stock?

    Problem ...

    Solution Summary

    This explains the steps to compute the calculating WACC

    $2.19

    ADVERTISEMENT