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Chapter 13 Hw Questions

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13.1 Finance balance sheet: KneeMan Markup Company has total debt obligations with a book and market value equal to $30 million and $28 million, respectively. It also has total equity with a book and market value equal to $20 million and $70 million, respectively. If you were going to buy all of the assets of KneeMan Markup today, how much should you be willing to pay? Particulars Equity Debt Total Book Value Market Value 20000000 70000000 30000000 28000000 50000000 98000000 I would be willling to pay $98,000,000. The market value is the best option to use for evaluation 13.5 Cost of common stock: Whitewall Tire Co. just paid a $1.60 dividend on its common shares. If Whitewall is expected to increase its annual dividend by 2 percent per year into the foreseeable future and the current price of Whitewall’s common shares is $11.66, what is the cost of common equity for Whitewall? Particulars Dividend Stock Price Growth Rate CoE Value 1.6 11.66 2% 15.7221% 1.8332 Cost of Common Equity = $1.83 Cost of Equity = (Dividend / Stock Price) + Growth Rate 13.6 Cost of common stock: Seerex Wok Co. is expected to pay a dividend of $1.10 one year from today on its common shares. That dividend is expected to increase by 5 percent every year thereafter. If the price of Seerex is $13.75, what is Seerex’s cost of common equity? Particulars Value Dividend after 1 yr Current Price Growth Rate CoE 1.1 13.75 5% 13% 1.7875 Cost of Equity = (Dividend / Stock Price) + Growth Rat ...
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