Cost of Capital Essay

LEIs expect net income this year is $34,285.72, its established dividend payout ratio is 30 percentages, its federal-plus-state tax rank is 40 percent, and investors expect earnings and dividends to grow at a constant rate of 9 percent in the future. LEI paid a dividend of $3.60 per portion last year, and its stock currently sells at a outlay of $54 per share. LEI sack up obtain new capital in the following waysPreferred New preferred stock with a dividend of $11 can be sold to the public at a legal injury of $95 per share. Debt Debt can be sold at an interest rate of 12 percent.a. Determine the cost of each capital structure component.b. Calculate the WACC.c. LEI has the following investiture opportunities that are typical average-risk projects for the firm ProjectCost at t = 0 Which projects should LEI accept? Why? 2(382)2. The Heuser Companys currently slap-up 10 percent coupon bonds have a yield to maturity of 12 percent. Heuser believes it could issue at par new bonds t hat would provide a resembling yield to maturity. If its marginal tax rate is 35 percent, what is Heusers aftert-tax cost of debt? 2(383)3. Trivoli Industries plans to issue some $100 par preferred stock with an 11 percent dividend. The stock is selling on the market for $97.00, but Trivoli must pay flotation costs of 5 percent of the market price, so the net price that firm will receive is $92.15 per share. What is Trivolis cost of preferred stock with flotation considered? 2(383)4. Zwing-Zook Enterprises has a beta of 1.45. The risk-free rate is 6 percent and the expected return on the market portfolio is 10 percent. The company presently pays a dividend of $2 a share and investors expect it to experience a growth in dividends of 7 percent per annum for many years to come. a. What is the stocks required rate of return according to CAPM? b. What is the stocks present market price per share, assuming this required return? 1(77)