1. Union Local School District has bonds outstanding with a coupon rate of 4.6 percent paid semiannually and 21 years to maturity. The yield to maturity on these bonds is 3.9 percent and the bonds have a par value of $5,000.
What is the dollar price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Bond price $______
2. Assuming semiannual compounding, what is the price of a zero coupon bond with 18 years to maturity paying $1,000 at maturity if the YTM is (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.):
Price of the Bond
a. 3 percent $
b. 6 percent $
c. 9 percent $
3. The next dividend payment by ECY, Inc., will be $1.72 per share. The dividends are anticipated to maintain a growth rate of 4 percent, forever. The stock currently sells for $33 per share.
What is the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Dividend yield
%
What is the expected capital gains yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Capital gains yield
%
4. Miller Manufacturing has a target debt-equity ratio of .45. Its cost of equity is 13 percent, and its cost of debt is 7 percent. If the tax rate is 34 percent, what is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
WACC _________ %
5. Mullineaux Corporation has a target capital structure of 65 percent common stock and 35 percent debt. Its cost of equity is 14 percent, and the cost of debt is 8 percent. The relevant tax rate is 30 percent.
What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
WACC _________%
6. Filer manufacturing has 9 million shares of common stock outstanding. The current share price is $81, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value $80 million, a coupon of 10 percent, and sells for 96 percent of par. The second issue has a face value of $50 million, a coupon of 11 percent, and sells for 104 percent of par. The first issue matures in 25 years, the second in 8 years.
a. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)
Equity / Value _______
Debt / Value _________
b. What are the company's capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)
Equity / Value _______
Debt / Value _________
c. Which are more relevant?
- Market value weights
- Book value weights
7. Titan Mining Corporation has 9.7 million shares of common stock outstanding and 410,000 4 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $45 per share and has a beta of 1.35, and the bonds have 10 years to maturity and sell for 116 percent of par. The market risk premium is 8.5 percent, T-bills are yielding 5 percent, and the company's tax rate is 35 percent.
A. What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)
Weight
- Debt ________
- Equity ______
B. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Discount rate ________%