Finance assignment : Using the dividend discount model, what is the cost of equity capital for Zeller Mining if the company will pay a dividend of C$2.30 next year, has a payout ratio of 30%, a return on equity (ROE) of 15%, and a stock price of C$45? Dot.Comhasdeterminedthatitcouldissue$1,000face valuebondswithan8%coupon

1 page Finance(risk mgt) : Compare and contrast the approach used by Tetra Tech n its knowledge management system with the approach used by most other companies.
May 6, 2017
business finance
May 6, 2017

Finance assignment

  1. Using the dividend discount model, what is the cost of equity capital for Zeller Mining if the company will pay a dividend of C$2.30 next year, has a payout ratio of 30%, a return on equity (ROE) of 15%, and a stock price of C$45?
  2. Dot.Comhasdeterminedthatitcouldissue$1,000face valuebondswithan8%coupon

paidsemiannuallyand afive-yearmaturityat$900perbond.IfDot.Com’smarginaltaxrateis38%,itsafter-taxcostofdebtis?

 

  1. MorganInsuranceLtd.issuedafixed-rateperpetualpreferredstockthreeyearsagoand

placedit privatelywithinstitutionalinvestors.Thestockwasissuedat$25persharewitha$1.75dividend.Ifthecompanyweretoissuepreferredstocktoday,theyieldwouldbe 6.5%.Thestock’scurrentvalueis:

 

  1. Fran McClureofAlbaAdvisersisestimatingthecostofcapitalofFrontierCorporation aspartofhervaluationanalysisofFrontier.McClurewillbeusingthisestimate,along with projectedcashflowsfromFrontier’snewprojects,toestimatetheeffectofthesenew projectsonthevalueofFrontier.McClurehasgatheredthefollowinginformationon FrontierCorporation:

 

CurrentYear ForecastedforNextYear
Bookvalueofdebt $50 $50
Marketvalueofdebt $62 $63
Bookvalueofshareholders’equity $55 $58
Marketvalueofshareholders’equity $210 $220

 

TheweightsthatMcClureshouldapplyinestimatingFrontier’scostof capitalfordebtandequityare,respectively:

 

  1. Trumpit Resorts Company currently has 1.2 million common shares of stock out- standing and the stock has a beta of 2.2. It also has $10 million face value of bonds that have five years remaining to maturity and 8% coupon with semiannual payments, and are priced to yield 13.65%. If Trumpit issues up to $2.5 million of new bonds, the bonds will be priced at par and have a yield of 13.65%; if it issues bonds beyond $2.5 million, the expected yield on the entire issuance will be 16%. Trumpit has learned that it can issue new common stock at $10 a share. The current risk-free rate of interest is 3% and the expected market return is 10%. Trumpit’s marginal tax rate is 30%. If Trumpit raises $7.5 million of new capital while maintaining the same debt-to-equity ratio, its weighted average cost of capital is?

 

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