11. Rivoli Inc. hired you as a consultant to help estimate its cost of capital. You have been provided with the following data: D0 = $0.80; P0 = $32.50; and g = 8.00% (constant). Based on the DCF approach, what is the cost of equity from retained earnings? 13.22% 8.10% 10.45% 10.77% 10.66% ------
12. Ingram Electric Products is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected. WACC: 9.50% Year 0 1 2 3 Cash flows -$800 $350 $350 $350 15.03% 13.73% 10.88% 12.95% 10.62% ------
13. Malholtra Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative), in which case it will be rejected. WACC: 10.00% Year 0 1 2 3 4 Cash flows -$1,175 $300 $320 $340 $360 7.65% 6.12% 5.13% 7.72% 6.66% ------
14. Rivoli Inc. hired you as a consultant to help estimate its cost of capital. You have been provided with the following data: D0 = $0.80; P0 = $77.50; and g = 8.00% (constant). Based on the DCF approach, what is the cost of equity from retained earnings? 8.66% 7.20% 10.12% 9.11% 10.30% ------
15. Rivoli Inc. hired you as a consultant to help estimate its cost of capital. You have been provided with the following data: D0 = $0.80; P0 = $42.50; and g = 8.00% (constant). Based on the DCF approach, what is the cost of equity from retained earnings? 11.34% 8.13% 10.03% 9.13% 12.24% ------
16. To help finance a major expansion, Castro Chemical Company sold a noncallable bond several years ago that now has 20 years to maturity. This bond has a 9.25% annual coupon, paid semiannually, sells at a price of $850, and has a par value of $1,000. If the firm's tax rate is 40%, what is the component cost of debt for use in the WACC calculation? 7.22% 5.95% 6.68% 5.08% 8.22% ------
17. Lasik Vision Inc. recently analyzed the project whose cash flows are shown below. However, before Lasik decided to accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firm's WACC. The Fed's action did not affect the forecasted cash flows. By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's projected NPV can be negative, in which case it should be rejected. Old WACC: 8.00% New WACC: 8.50% Year 0 1 2 3 Cash flows -$1,000 $410 $410 $410 -$8.99 -$9.27 -$9.46 -$10.88 -$11.83 ------
18. Trahan Lumber Company hired you to help estimate its cost of capital. You obtained the following data: D1 = $1.25; P0 = $30.00; g = 5.00% (constant); and F = 6.00%. What is the cost of equity raised by selling new common stock? 9.72% 11.04% 10.75% 9.90% 9.43% ------
19. Trahan Lumber Company hired you to help estimate its cost of capital. You obtained the following data: D1 = $1.25; P0 = $45.00; g = 5.00% (constant); and F = 6.00%. What is the cost of equity raised by selling new common stock? 9.94% 7.80% 6.52% 9.71% 7.96% ------
20. You were hired as a consultant to Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of retained earnings is 12.00%, and the tax rate is 40%. The firm will not be issuing any new stock. What is Quigley's WACC? 9.34% 9.51% 8.99% 7.62% 8.57%