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shares

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Question

 Suppose that you own 3,100 shares of Nocash Corp. and the company is about to pay a 25% stock dividend. The stock currently sells at $125 per share. a.What will be the number of shares that you hold after the stock dividend is paid? (Do not round intermediate calculations.)   Number of shares   b.What will be the total value of your equity position after the stock dividend is paid? (Do not round intermediate calculations.)   Total value$    c.What will be the number of shares that you hold if the firm splits five for four instead of paying the stock dividend?   Number of shares hold

 
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fixed income

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Question

The treasurer of Riley Coal Co. is asked to compute the cost of fixed income securities for her corporation. Even

before making the calculations, she assumes the aftertax cost of debt is at least 1 percent less than that for preferred stock.

     Debt can be issued at a yield of 12.6 percent, and the corporate tax rate is 20 percent. Preferred stock will be priced at $78 and pay a dividend of $8.00. The flotation cost on the preferred stock is $7.

a.Compute the aftertax cost of debt. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
  Aftertax cost of debt %  
b.Compute the aftertax cost of preferred stock. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
  Aftertax cost of preferred stock %  
c.Based on the facts given above, is the treasurer correct?
  
 No, the treasurer is incorrect.Yes, the treasurer is correct.
 
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capital

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Question

Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The

corporate tax rate is 40 percent. Northwest’s treasurer is trying to determine the corporation’s current weighted average cost of capital in order to assess the profitability of capital budgeting projects.

     Historically, the corporation’s earnings and dividends per share have increased about 8.6 percent annually and this should continue in the future. Northwest’s common stock is selling at $70 per share, and the company will pay a $7.20 per share dividend (D1).

     The company’s $108 preferred stock has been yielding 7 percent in the current market. Flotation costs for the company have been estimated by its investment banker to be $5.00 for preferred stock.

     The company’s optimum capital structure is 45 percent debt, 20 percent preferred stock, and 35 percent common equity in the form of retained earnings. Refer to the following table on bond issues for comparative yields on bonds of equal risk to Northwest.

Data on Bond Issues
  IssueMoody’s
Rating
 		 PriceYield to Maturity
  Utilities:      
     Southwest electric power––7 1/4 2023Aa2$925.18 8.77%
     Pacific bell––7 3/8 2025Aa3 897.25 8.55 
     Pennsylvania power & light––8 1/2 2022A2 955.66 8.55 
  Industrials:      
     Johnson & Johnson––6 3/4 2023Aaa 860.24 8.45%
     Dillard’s Department Stores––7 3/8 2023A2 920.92 9.00 
     Marriott Corp.––10 2015B2 1,065.10 9.66 
a.Compute the cost of debt, Kd (use the accompanying table—relate to the utility bond credit rating for yield.) (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
  Cost of debt %  
b.Compute the cost of preferred stock, Kp. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
  Cost of preferred stock %  
c.Compute the cost of common equity in the form of retained earnings, Ke. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
  Cost of common equity %  
d.Calculate the weighted cost of each source of capital and the weighted average cost of capital. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)
       Weighted Cost
  Debt (Kd) %  
  Preferred stock (Kp)      
  Common equity (Ke)      
 
  Weighted average cost of capital (Ka) %  
 
 
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share capital

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Question

The authorized share capital of the Alfred Cake Company is 120,000 shares. The equity is currently shown in the

company’s books as follows:

   
  Common stock ($2 par value)$80,000  
  Additional paid-in capital 30,000  
  Retained earnings 50,000  
 
  Common equity$160,000  
  Treasury stock (2,000 shares) 24,000  
 
  Net common equity$136,000  
 
a.How many shares are issued?
  Number of shares issued  
b.How many shares are outstanding?
  Outstanding shares  
c.How many more shares can be issued without the approval of shareholders?
  Number of shares issued
 
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