Chapter 10 #3 You have a portfolio with a beta of 1.55. What will be the new portfolio beta if you keep 91 percent of your money in the old portfolio and 9 percent in a stock with a beta of 0.84? (Do not round intermediate calculation and round your answer to 2 decimal places.) New portfolio beta #4 Suppose Paccar’s current stock price is $108.26 and it is likely to pay a $3.06 dividend next year. Since analysts estimate Paccar will have an 5.6 percent growth rate, what is its required return? (Round your answer to 2 decimal places.) Required return % #6 You own $18,615 of Human Genome stock that has an assumed beta of 3.56. You also own $13,870 of Frozen Food Express (assumed beta = 1.69) and $4,015 of Molecular Devices (assumed beta = 0.54). What is the beta of your portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places.) #7 Following are four economic states, their likelihoods, and the potential returns: Economic State Fast growth Slow growth Recession Depression Probability Return 0.30 65 % 0.51 22 0.14 –8 0.05 –39 Compute the expected return and standard deviation. (Do not round intermediate calculations and round your answers to 2 decimal places.) Expected return % Standard deviation % CHAPTER 11 #1 Diddy Corp. stock has a beta of 1.2, the current risk-free rate is 7 percent, and the expected return on the market is 13.50 percent. What is Diddy’s cost of equity? (Round your answer to 2 decimal places.) Cost of equity % #2 Oberon, Inc., has a $30 million (face value) 8-year bond issue selling for 97 percent of par that pays an annual coupon of 8.30 percent. What would be Oberon’s before-tax component cost of debt? (Round your answer to 2 decimal places.) Cost of debt % #3 Suppose that LilyMac Photography expects EBIT to be approximately $450,000 per year for the foreseeable future, and that it has 1,000 10-year, 10 percent annual coupon bonds outstanding. (Use Table 11.1) What would the appropriate tax rate be for use in the calculation of the debt component of LilyMac’s WACC? Tax rate % #4 ILK has preferred stock selling for 97 percent of par that pays a 9 percent annual coupon. What would be ILK’s component cost of preferred stock? (Round your answer to 2 decimal places.) Cost of preferred stock % #5 FarCry Industries, a maker of telecommunications equipment, has 2 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 10,000 bonds. Suppose the common shares are selling for $25 per share, the preferred shares are selling for $13.50 per share, and the bonds are selling for 97 percent of par. What would be the weight used for equity in the computation of FarCry’s WACC? (Round your answer to 2 decimal places.) Weight used % #6 OMG Inc. has 4 million shares of common stock outstanding, 3 million shares of preferred stock outstanding, and 5,000 bonds. Suppose the common shares sell for $19 per share, the preferred shares sell for $18 per share, and the bonds sell for 108 percent of par. What weight should you use for preferred stock in the computation of OMG’s WACC? (Round your answer to 2 decimal places.) #7 Suppose that JB Cos. has a capital structure of 76 percent equity, 24 percent debt, and that its beforetax cost of debt is 14 percent while its cost of equity is 18 percent. Assume the appropriate weightedaverage tax rate is 25 percent. What will be JB’s WACC? (Round your answer to 2 decimal places.) WACC % #8 BetterPie Industries has 8 million shares of common stock outstanding, 6 million shares of preferred stock outstanding, and 25,000 bonds. Assume the common shares are selling for $47 per share, the preferred shares are selling for $24.50 per share, and the bonds are selling for 99 percent of par. What would be the weights used in the calculation of BetterPie’s WACC? (Do not round intermediate calculations and round your answers to 2 decimal places.) Equity weight % Preferred stock weight % Debt weight % #9 Suppose that Brown-Murphies’ common shares sell for $17.00 per share, that the firm is expected to set their next annual dividend at $0.41 per share, and that all future dividends are expected to grow by 3 percent per year, indefinitely. Assume Brown-Murphies faces a flotation cost of 13 percent on new equity issues. What will be the flotation-adjusted cost of equity? (Round your answer to 2 decimal places.) Cost of equity %
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