Cost of Capital Worksheet, homework help

Anonymous
timer Asked: Oct 9th, 2016
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Question Description

Hi  I completed the Cost of Capital worksheet and need the answers in an Excel spreadsheet.  However, I am not Excel savvy and need some help transferring the information.

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MBA 520 Module Eight Cost of Capital Worksheet The assignment in this module builds on the idea of forecasting and valuation theory from Chapters 6 and 7 in Module Six by valuing a company through calculations using real data. This will strengthen your recommendation in the final project by giving you the means to provide evidence from a financial analysis. Prompt Review the questions below and use the data provided in the question to solve the calculation. As you work through each equation, think about where the data for your company may be found to make the same calculations and how the information from these calculation can inform your recommendations for your final project. Use the non-graded discussion board in this module to ask questions of your peers to inform your responses to the questions below. 1. What is the market interest rate on XYZ’s debt and its component cost of debt? Coupon rate 12% Coupons per year 2 Years to maturity 15 Price $1,153.72 Face value $1,000 Tax rate 40% Market Interest Rate = Using the financial calculator functions: n=30 , PV= -1153.72, PMT=60, FV= 1000 CPT I/Y = 5 x 2 = 10% yearly market interest rate Cost of Debt = 10(1-.40) = (A – T kd) = 6% cost of debt 2. What is the firm’s cost of preferred stock? Nominal dividend rate 10% Dividends per year 4 Par value $100 Price $111.10 kp = Dp / Pp kp = $10 / $111.10 Cost of Preferred Stock = .1(100) / 111.10 = .090 or 9% cost of preferred stock 3. What is XYZ’s estimated cost of common equity using the CAPM approach? β 1.2 rRF 7% RPM 6% ks = krf + β Ks = 7% + 1.2 * * (km – krf) 6% Worksheet adapted from Brigham, E., & Houston, J. F. (2016). Fundamentals of financial management (14th ed.). Boston, MA: Cengage Learning. Estimated Cost of Common Equity = .07 + (.06)1.2 = .142 or 14.2 % Cost of Common Equity 4. What is the estimated cost of common equity using the DCF approach? Price $50 Current dividend $4.19 Constant growth rate 5% D1 = D0 * ( 1 + g ) D1 = $4.19 * ( 1 + 0.05 ) Estimated Cost of Common Equity = 4.19(1.05)/50 + .05 = .1379 or 13.8 % Cost of Common Equity 5. What is the bond-yield-plus-risk-premium estimate for XYZ’s cost of common equity? "Bond yield + RP" premium 4% market interest rate on XYZ’s debt 10% ks ks = Bond yield = 10% + + Risk premium 4% Bond-yield-plus-risk-premium estimate = .10 + .04 = .14 or 14 %Bond yield risk premium estimate 6. What is your final estimate for rs? METHOD ESTIMATE CAPM 14.20% DCF 13.80% rd + RP 14.00% Estimate = 14.2 + 13.8 + 14 = 42 /3 = 14% cost of equity 7. XYZ estimates that if it issues new common stock, the flotation cost will be 15%. XYZ incorporates the flotation costs into the DCF approach. What is the estimated cost of newly issued common stock, considering the flotation cost? % Flotation cost 15% Net proceeds after flotation $42.50 A – F proceeds A - F proceeds = = Price x $50 x Ks = D1 / A-F proceeds Ks = $4.40 / $42.50 ( 1 - %F ) ( 1 - 15.00% ) + g + 0.05 Cost of Newly Issued Common Stock = 4.19(1.05)/50(1-.015) + .05 = 4.40/42.50 + .05 = .1535 or 15.4 % Cost of newly issued common stock 8. What is XYZ’s overall, or weighted average, cost of capital (WACC)? Ignore flotation costs. wd 30% rd (1 – T) 6.00% wp 10% rp 9.00% wc 60% rs 14.00% Equation: =.3(.10)(.6) +.1(.09) +.6(.14) = .111 or 11.1 % WACC ...
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Tutor Answer

JamesM847
School: University of Maryland

Hi Please check the attached  file, let me know if you have any question, thanks, James,

1 What is the market interest rate on XYZ’s debt and its component cost of debt?
coupon rate
12%
coupons per year
2
years to maturity
15
price
$1,153.72
face value
$1,000
Tax rate
40%
Market Interest Rate
10.000%
Cost of Debt
6.00%
2 What is the firm’s cost of preferred stock?...

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Anonymous
Tutor went the extra mile to help me with this essay. Citations were a bit shaky but I appreciated how well he handled APA styles and how ok he was to change them even though I didnt specify. Got a B+ which is believable and acceptable.

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