1) Percy Motors has the target capital structure of= 45% debt and 55% common equity, with no favoured stock. Yield to maturity on company's outstanding bonds is= 8%, and its tax rate is= 40%. Percy's CFO evaluates that company's WACC is= 14.00%. Compute Percy's cost of common equity?
2) Sidman Products' common stock presently sells for= $48 a share. Firm is expected to earn= $5.76 per share this year and to pay a year-end dividend of $2.30, and it finances only with common equity.
If investors need a= 12% return, determine the expected growth rate?
If Sidman reinvests retained earnings in projects whose average return is equal to stock's expected rate of return, what will be next year's EPS?
3) Your firm is considering the buying of the new $504,000 computer-based order entry system. System will be declined straight-line to zero over its five-year life. It will be worth= $45,000 at end of that time. You will save= $198,000 before taxes per year in order processing costs and you will be able to decrease working capital by= $59,684 (this is a one-time reduction). If the tax rate is= 35%t, the IRR for this project is percent.