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Nana76 [90]
3 years ago
15

Gul Corp. considers the following capital structure optimal: 40% debt; 50% equity; and 10% preferred stock. Gul’s stock currentl

y sells for $50 per share. Gul’s beta is 1.8. The risk-free rate is 9 percent and the expected market return is 13 percent. Gul’s bond currently sells in the market for $1150. The bond carries an annual coupon payment of 12 % of the face value which is paid in two semiannual payments. The bond will mature in 15 years and its face value is $1000. The bond's annual yield to maturiy is 10.04%. The firm’s marginal tax rate is 40 percent. The Gul’s required return on the preferred stock is 13%. Find the firm’s overall cost of capital (WACC).
Business
1 answer:
Dafna11 [192]3 years ago
5 0

Answer:

WACC 11.80960%

Explanation:

<u>For the cost of capital we will use the CAPM model</u>

Ke= r_f + \beta (r_m-r_f)  

risk free 0.09

market rate 0.13

premium market = (market rate - risk free) = 0.04

beta(non diversifiable risk) 1.8

Ke= 0.09 + 1.8 (0.04)  

Ke 0.162 = 16.2%

<u>Then we can calculate the WACC</u>

WACC = K_e(\frac{E}{E+P+D}) + K_p(\frac{P}{E+P+D}) + K_d(1-t)(\frac{D}{E+P+D})

Ke=cost of capital= 0.162 (according to CAPM)

Equity weight =0.5

Kp= return on preferredstock = 0.13

Preferred Weight = 0.1

Kd= we use the actual market rate for the bebt = 10.04% = 0.1004

Debt Weight = 0.4

tax-rate = 40% = 0.4

WACC = 0.162(0.5) + 0.13(0.1) + 0.1004(1-0.4)(0.4)

WACC 11.80960%

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Answer:

The number of new shares = 6

Explanation:

Dividend is the proportion of profit paid by a company to its shareholder as a form of return on their investment. Another form of return on share investment is the capital gain; which is the difference between the selling price of a share now and its cost when it was purchased.

<em>For Jodi, we need to first calculate the amount of dividends earned on the total shares she owns. And then divide the result by the current purchase price of a share to arrive at the number of shares she can buy more.</em> This is done as follows:

Total dividends =  112× 0.80 = $89.6

Current price of a share = $16.20

THe number of shares that can be purchased= 89.6/16.20=5.5

The number of new shares = 6

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Answer:

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Suppose you know a company's stock currently sells for $90 per share and the required return on the stock is 15 percent. You als
Bingel [31]

Answer:

$ 3.87

Explanation:

It is given that :

Cost of the company's stock per share = $ 90

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We known that

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