Posted: April 28th, 2016

What is the cost of common equity?

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19
Jun
LL Incorporated s currently outstanding 11% coupon bonds have a yield to maturity of 8%. LL believes it could issue at par new bonds that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is LL s after tax cost of debt?
Categories: Business
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10 2
LL Incorporated s currently outstanding 11% coupon bonds have a yield to maturity
of 8%. LL believes it could issue at par new bonds that would provide a similar
yield to maturity. If its marginal tax rate is 35%, what is LL s after tax cost
of debt?

10 4
Burnwood Tech plans to issue some $60 par preferred stock with a 6% dividend.
The stock is selling on the market for $70.00, and Burnwood must pay flotation
costs of 5% of the market price. What is the cost of the preferred stock?

10 5
Summerdahl Resorts common stock is currently trading at $36 a share. The stock
is expected to pay a dividend of $3.00 a share at the end of the year (D1 _ $3.00),
and the dividend is expected to grow at a constant rate of 5% a year. What is the
cost of common equity?
10 6
Booher Book Stores has a beta of 0.8. The yield on a 3 month T bill is 4% and the
yield on a 10 year T bond is 6%. The market risk premium is 5.5%, but the stock
market return in the previous years was 15%. What is the estimated cost of common
equity using the CAPM?
10 7
Shi Importers balance sheet shows $300 million in debt, $50 million in preferred
stock, and $250 million in total common equity. Shi faces a 40% tax rate and the
following data: rd _ 6%, rps _ 5.8%, and rs _ 12%. If Shi has a target capital structure
of 30% debt, 5% preferred stock, and 65% common stock, what

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