Corporate Finance

41. Tanrun Inc. is expected to pay an annual dividend of $0.45 per share in one year. Analysts expect the firm's dividends to grow by 7% forever. Its stock price is $34.8 and its beta is 1.3. The risk-free rate is 2% and the expected market risk premium is 4.5%.

What is the best guess for the cost of equity?

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42. Lugget Corp. has one bond issue outstanding with an annual coupon of 3.4%, a face value of $1,000 and a price of $951.33, which matures in 10 years. The company's tax rate is 25%.

a. What is Lugget's pre-tax cost of debt?

b. What is the company's after-tax cost of debt?


43. Terence Terraforming Inc. has a capital structure of 35% debt and 65% common stock. The expected return on the firm's debt is 4.3% and the expected return on the firm's equity is 10%. The firm's marginal tax rate is 21%.

a. What is the company's weighted average cost of capital?


44. You have collected the following information about a company:

Source of capital Book value After-tax cost
Long-term debt 100,000 0.08
Preferred stock 72,000 0.11
Common stock 85,000 0.18

Total. 330,00. 257,000


a. What is the weighted average cost of capital using market values?

b. What is the weighted average cost of capitalusing book values?


45. Exavior Inc.'s cash flow from assets during the current year is $100 million, which is expected to grow at a constant rate of 4% in the future. The weighted average cost of capital is 12%.

What is the firm's total corporate value (in $ million)?

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