1.
Eric has another get-rich-quick idea, but needs funding to support. He chooses an all-debt funding scenario. He will borrow $2,815 from Wendy, who will charge him 7% on the loan. He Will also borrow $1,860 from Bebe, who will charge 9% on the loan, and $1,325 from Shelly, who will charge 15% on the loan. What is the weighted average cost of capital for Eric? (Round 2 decimal places)
2.
Grey's Pharmaceuticals has a new project that will require funding of $11.4 million. The company has decided to pursue an all-debt scenario. Grey's has made agreements with four lenders for the needed financing. These lenders will advance the following and interest rates:
Lender Amount Interest Rate
Steven $4,150,047 13%
Yang $3,198,617 11%
Shepherd $2,866,374 8%
Bailey $1,184,962 9%
What is the weighted average cost of capital for the $11,400,000
round 2 decimal places
3.
Kenny Enterprises has just issued a bond with a par value of $1,000, twenty years to maturity, and a coupon rate of 8.9% with semiannual payments. What is the cost of debt for Kenny Enterprises if the bond sells at the following prices? What do you notice about the price and the cost of debt?
a. $936.59
b. $1,000.00
c. $1,024.55
d. $1,207.79
What do you notice about the price and the cost of debt?
4.
Kyle is raising funds for his company by selling preferred stock. The preferred stock has a par value of $100 and a dividend rate of 6.0%. The stock is selling for $80.00 in the market. What is the cost of preferred stock for Kyle? Round 2 decimal places
5.
Kyle is raising funds for his company by selling preferred stock. The preferred stock has a par value of $76 and a dividend rate of 6.1%. The stock is selling for $53.43 in the market. Kyle hires Wilson Investment Bankers to sell the preferred stock. Wilson charges a fee of 2% on the sale of preferred stock. What is the cost of preferred stock Kyle using the investment banker? Round 2 decimal places
6.
Stan is expanding his business and will sell common stock for the needed funds. If the current risk-free rate is 6.2% and the expected market return is 14.8%, what is the cost of equity for Stan if the beta of the stock is: (round 2 decimal places)
a. 0.53?
b. 0.87?
c. 0.97?
d. 1.39?
7.
Stan is expanding his business and will sell common stock for the needed funds. If the current risk-free rate is 4.0% and the expected market return is 12.0%, the cost of equity for Stan is:
a. 10.00% if the beta of the stock is 0.75
b. 11.20% if the beta of the stock is 0.90
c. 12.40% if the beta of the stock is 1.05
d. 13.60% if the beta of the stock is 1.20
Suppose Stan had to delay the sale of the common stock for six months. When he finally did sell the stock, the risk-free rate had fallen to 3.0%, but the expected return on the market had risen to 13.0%. What was the effect on the cost of equity by waiting six months, using the four different betas? What do you notice about the increases in the cost of equity as beta is increase?
8.
Eric has another get-rich-quick idea, but needs funding to support. He chooses an all-debt funding scenario. He will borrow $2,000 from Wendy, who will charge him 6% on the loan. He Will also borrow $1,500 from Bebe, who will charge 8% on the loan, and $800 from Shelly, who will charge 14% on the loan. What is the weighted average cost of capital for Eric? (Round 2 decimal places)
9.
Grey's Pharmaceuticals has a new project that will require funding of $7.2 million. The company has decided to pursue an all-debt scenario. Grey's has made agreements with four lenders for the needed financing. These lenders will advance the following and interest rates:
Lender Amount Interest Rate
Steven $2,577,234 15%
Yang $2,214,746 14%
Shepherd $1,661,967 11%
Bailey $746,053 12%
What is the average cost of capital for the $7,200,000
10.
Kenny Enterprises has just issued a bond with a par value of $1,000, twenty years to maturity, and a coupon rate of 10.3% with semiannual payment. What is the cost of debt for Kenny Enterprises if the bond sells at the following prices? What do you notice about the price and the cost of debt?
a. $936.26
b. $1,000.00
c. $1,021.38
d. $1,168.47
What do you notice about the price and cost of debt?
a. The price of the bond increases as the cost of debt decreases, all else equal.
b. The price of the bond increases as the cost of debt increases, all else equal.
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