# 2024 – Watters Umbrella Corp issued 20year bonds 2 years ago at a coupon rate of 5 4 percent The bonds make

Fin 571 Week 4 Connect Lab Questions Latest 2016 Version – 2024

- Watters Umbrella Corp. issued 20year bonds 2 years ago at a coupon rate of 5.4 percent. The bonds make semiannual payments. If these bonds currently sell for 85 percent of par value, what is the YTM?
- Microhard has issued a bond with the following characteristics:

Par: $1,000

Time to maturity: 20 years

Coupon rate: 8 percent

Semiannual payments

Calculate the price of this bond if the YTM is

- Yan Yan Corp. has a $2,000 par value bond outstanding with a coupon rate of 5.5 percent paid semiannually and 18 years to maturity. The yield to maturity of the bond is 6.2 percent. What is the dollar price of the bond?
- The next dividend payment by ECY, Inc., will be $1.56 per share. The dividends are anticipated to maintain a growth rate of 4 percent, forever. The stock currently sells for $29 per share. What is the required return?
- Schiller Corporation will pay a $3.14 per share dividend next year. The company pledges to increase its dividend by 5 percent per year, indefinitely. If you require a return of 12 percent on your investment, how much will you pay for the company’s stock today?
- The Starr Co. just paid a dividend of $1.90 per share on its stock. The dividends are expected to grow at a constant rate of 6 percent per year, indefinitely. Investors require a return of 10 percent on the stock.

What is the current price?

What will the price be in three years?

What will the price be in 5 years?

7. Zoom stock has a beta of 1.46. The risk-free rate of return is 3.07 percent and the market rate of return is 11.81 percent. What is the amount of the risk premium on Zoom stock?

- The risk premium for an individual security is computed by:

9. The risk-free rate of return is 3.68 percent and the market risk premium is 7.84 percent. What is the expected rate of return on a stock with a beta of 1.32?

- Mullineaux Corporation has a target capital structure of 70 percent common stock and 30 percent debt. Its cost of equity is 18 percent, and the cost of debt is 6 percent. The relevant tax rate is 30 percent. What is the company’s WACC?
- Miller Manufacturing has a target debt–equity ratio of .60. Its cost of equity is 15 percent, and its cost of debt is 4 percent. If the tax rate is 35 percent, what is the company’s WACC?
- Filer Manufacturing has 5 million shares of common stock outstanding. The current share price is $77, and the book value per share is $8. The company also has two bond issues outstanding. The first bond issue has a face value $60 million, a coupon of 6 percent, and sells for 97 percent of par. The second issue has a face value of $30 million, a coupon of 7 percent, and sells for 105 percent of par. The first issue matures in 21 years, the second in 4 years.

a. What are the company’s capital structure weights on a book value basis?

b. What are the company’s capital structure weights on a market value basis?

c. Which are more relevant?

- Titan Mining Corporation has 8.7 million shares of common stock outstanding and 310,000 6 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $35 per share and has a beta of 1.35, and the bonds have 20 years to maturity and sell for 116 percent of par. The market risk premium is 7.5 percent, Tbills are yielding 5 percent, and the company’s tax rate is 30 percent.

a. What is the firm’s market value capital structure?

b. If the company is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows?

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