Problem 1 - Calculating Cost of Equity
The Muse Co. just issued a dividend of $2.65 per share on its common stock. The company is expected to maintain a constant 5.50 percent growth rate in its dividends indefinitely.
If the stock sells for $53 a share, what is the company's cost of equity?
Problem 2 - Calculating Cost of Preferred Stock
Holdup Bank has an issue of preferred stock with a $4.95 stated dividend that just sold for $86 per share. What is the bank's cost of preferred stock?
Problem 3 - Calculating WACC
Mullineaux Corporation has a target capital structure of 70 percent common stock, 10 percent preferred stock, and 20 percent debt. Its cost of equity is 13 percent, the cost of preferred stock is 4 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 35 percent.
a. What is Mullineaux's WACC?
b. What is the after tax cost of debt?
Sixx AM Manufacturing has a target debt-equity ratio of 0.45. 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?