FIN-Mod8-The Stock Valuation and The Cost of Capital

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Business Finance

Saudi electronic university



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Complete the following problems:

  • Problem 1: Preferred Stock Market price
  • Problem 2: Common Stock Market Price
  • Problem 3: Preferred Stock Value
  • Problem 4: Growth Rate
  • Problem 5: Dividend Constant Model-Stock Expected Rate of Return
  • Problem 6: Required Rate of Return (CAPM)
  • Problem 7: Cost of Debt
  • Problem 8: Weighted Average Cost of Capital (WACC)

Complete the problems in an Excel spreadsheet. Be sure to show all your work on the Excel spreadsheet ; no hard keys.

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Problem 08-1: Preferred Stock Market price The preferred stock of a company pays a dividend of 3.25 SAR. What is the value of the stock if you required return is 9.00 pe Par value of the stock is 100 SAR. Problem 08-2: Common Stock Market Price If you purchase common stock at 45 SAR per share, hold it for 1 year, and then sell it after a dividend of 5 SAR is paid. How much will the stock price have to appreciate for you to satisfy your required rate of return of 15 percent? Problem 08-3- Preferred Stock Value You are considering an investment in a company's preferred stock. The preferred stock pays a dividend of 2.25 SAR. Your requ Problem 08-4: Growth Rate A firm's return on equity is 15 percent and is planning to retain 35 percent of earnings for investment purposes, what will be Problem 08-5: Dividend Constant Model-Stock Expected Rate of Return A company paid a dividend of 25 SAR last year and the shares are selling for 320 SAR per share. The dividend is expected to gr Problem 08-6: Required Rate of Return (CAPM) A corporation's stock has a beta of 1.2. The risk-free rate is 7.25% and the expected return on the market is 10.5%. What is th Problem 08-7: Cost of Debt A company issues a 1,000 SAR par value bond that pays 8 percent annual interest and matures in 17 years. Investors are willi Flotation costs will be 3 percent of market value. The company is a 33 percent marginal tax bracket. What will be the firm's a Problem 08-8: WACC Calculation The capital structure for a corporation is provided below. The company plans to maintain its debt structure in the future. If the firm has a 5 percent after-tax cost of debt, a 12.5 percent cost of preferred stock, and an 15 percent cost of common st Captial Structure Bonds Preferred stock Common Stock 1055 255 3500
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