Question

b) BuzzMart Inc. issued a 30-year, 7% coupon interest rate, $1 000 par value bond that pays interest semi-annually. The required return is currently 6%. Compute the value of the bond. c) Tsuz Industries has paid a dividend of $3.50 per share for the past year (DO = $3.50). The Chief Finance Officer expects the dividend to grow at a rate of 5% per annum for the foreseeable future. Assume investors require a rate of return of 12%. (i) Calculate the current price of the stock. (ii) If the stock currently trades at $53, would you buy it? d) Rainbow Airways is in the 40% tax bracket. Information on the company's debt, preferred stock and common stock are as follows: Debt The company can issue bonds at a yield to maturity of 8.25%. Preferred Stock The company can sell 9% preferred stock at its $55 per share par-value. Floatation costs are $5 per share. Common Stock Price per share is currently $50. Dividends are projected at $4 per share next year with a dividend growth rate of 5%. There are no floatation costs. (i) Calculate the cost of debt. (ii) Calculate the cost of preferred stock. (iii) Calculate the cost of common stock. (iv) Rainbow Airways' capital structure is 20% debt, 40% preferred stock and 40% common stock. Calculate the weighted average cost of capital (WACC).

          b) BuzzMart Inc. issued a 30-year, 7% coupon interest rate, $1 000 par value
bond that pays interest semi-annually. The required return is currently 6%.
Compute the value of the bond.
c) Tsuz Industries has paid a dividend of $3.50 per share for the past year (DO
= $3.50). The Chief Finance Officer expects the dividend to grow at a rate
of 5% per annum for the foreseeable future. Assume investors require a rate
of return of 12%.
(i) Calculate the current price of the stock.
(ii) If the stock currently trades at $53, would you buy it?
d) Rainbow Airways is in the 40% tax bracket. Information on the company's
debt, preferred stock and common stock are as follows:
Debt
The company can issue bonds at a yield to
maturity of 8.25%.
Preferred Stock
The company can sell 9% preferred stock at its
$55 per share par-value. Floatation costs are $5
per share.
Common Stock
Price per share is currently $50. Dividends are
projected at $4 per share next year with a dividend
growth rate of 5%. There are no floatation costs.
(i) Calculate the cost of debt.
(ii) Calculate the cost of preferred stock.
(iii) Calculate the cost of common stock.
(iv) Rainbow Airways' capital structure is 20% debt, 40% preferred stock
and 40% common stock. Calculate the weighted average cost of
capital (WACC).

b) BuzzMart Inc. issued a 30-year, 7% coupon interest rate, $1 000 par value
bond that pays interest semi-annually. The required return is currently 6%.
Compute the value of the bond.
c) Tsuz Industries has paid a dividend of 3.50 per share for the past year (DO
=3.50). The Chief Finance Officer expects the dividend to grow at a rate
of 5% per annum for the foreseeable future. Assume investors require a rate
of return of 12%.
(i) Calculate the current price of the stock.
(ii) If the stock currently trades at 53, would you buy it?
d) Rainbow Airways is in the 40% tax bracket. Information on the company's
debt, preferred stock and common stock are as follows:
Debt
The company can issue bonds at a yield to
maturity of 8.25%.
Preferred Stock
The company can sell 9% preferred stock at its55 per share par-value. Floatation costs are 5
per share.
Common Stock
Price per share is currently50. Dividends are
projected at 4 per share next year with a dividend
growth rate of 5%. There are no floatation costs.
(i) Calculate the cost of debt.
(ii) Calculate the cost of preferred stock.
(iii) Calculate the cost of common stock.
(iv) Rainbow Airways' capital structure is 20% debt, 40% preferred stock
and 40% common stock. Calculate the weighted average cost of
capital (WACC).

Added by Richard L.

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