1. Watters Umbrella Corp. issued 20-year bonds 2 years ago at a coupon rate of 8.4 percent. The bonds make semiannual payments. If these bonds currently sell for 90 percent of par value, what is the YTM? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
2. Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 25 years to maturity, and a coupon rate of 7.9 percent paid annually.
If the yield to maturity is 9 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
3. A Japanese company has a bond outstanding that sells for 92 percent of its ¥100,000 par value. The bond has a coupon rate of 5.1 percent paid annually and matures in 13 years.
What is the yield to maturity of this bond? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
4. Ayden, Inc., has an issue of preferred stock outstanding that pays a dividend of $4.75 every year, in perpetuity. This issue currently sells for $98 per share.
What is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
5. The next dividend payment by ECY, Inc., will be $1.64 per share. The dividends are anticipated to maintain a growth rate of 8 percent, forever. The stock currently sells for $31 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.)
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.)
6. Schiller Corporation will pay a $3.14 per share dividend next year. The company pledges to increase its dividend by 5 percent per year, indefinitely. If you require a return of 12 percent on your investment, how much will you pay for the company's stock today? (Donot round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
7. Zoom stock has a beta of 1.46. The risk-free rate of return is 3.07 percent and the market rate of return is 11.81 percent. What is the amount of the risk premium on Zoom stock?
12.76%
17.24%
10.25%
8.09%
9.59%
8. The risk premium for an individual security is computed by:
dividing the market risk premium by the beta of the security.
multiplying the security's beta by the market risk premium.
multiplying the security's beta by the risk-free rate of return.
dividing the market risk premium by the quantity (1 + Beta).
adding the risk-free rate to the security's expected return
9. The risk-free rate of return is 3.68 percent and the market risk premium is 7.84 percent. What is the expected rate of return on a stock with a beta of 1.32?
14.36%
13.12%
9.24%
9.17%
14.03%
10. Central Systems, Inc. desires a weighted average cost of capital of 8 percent. The firm has an after-tax cost of debt of 5 percent and a cost of equity of 12 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?
1.50
1.33
1.16
1.23
11. Mullineaux Corporation has a target capital structure of 80 percent common stock and 20 percent debt. Its cost of equity is 15 percent, and the cost of debt is 8 percent. The relevant tax rate is 35 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.)
12. Filer Manufacturing has 5 million shares of common stock outstanding. The current share price is $71, and the book value per share is $6. The company also has two bond issues outstanding. The first bond issue has a face value $65 million, a coupon of 6 percent, and sells for 96 percent of par. The second issue has a face value of $45 million, a coupon of 7 percent, and sells for 105 percent of par. The first issue matures in 21 years, the second in 5 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
13. Titan Mining Corporation has 8.5 million shares of common stock outstanding and 250,000 5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.25, and the bonds have 15 years to maturity and sell for 114 percent of par. The market risk premium is 7.5 percent, T-bills are yielding 4 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.)
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.)