questions - 3 qs - 89938

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  • From: Business, Management
  • Posted on: Wed 22 Apr, 2015
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1). Templeton Extended Care Facilities, Inc is considering the acquisition of a chain of cemeteries for $390 million. Since the primary assest of this business is real estate, Templeton's management has determined that they will be able to borrow the majority of the money needed to buy the business. The current owners have no debt financing but Templeton plans to borrow $280 million and invest only $110 million in equity in the acquisition. What weights should Templeton use in computing the WAAC for this acquisition? a). The appropiate (W d) weight is _? (round to one decimal place) b). The appropiate (W cs) weight is _? (round to one decimal place) 2). Compute the cost of capital for the firm for the following: a). A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11.2%. The bonds have a current market value of $1,127 and will mature in 10 years. The form's marginal tax rate is 34% . aa). The cost of capital from this bond debt is _% (round to two decimals places) b). A new common stock issue that paid a $1.76 dividend last year. The firm's dividends are expected to continue to grow at 7.5% per year forever. The price of the firm's common stock is now $27.27. bb). The cost of capital from the common equity is _% (round to two decimal places) c). A preferred stock paying a 9.9% dividend on a $150 par value. cc). The cost of the preferred stock is _% (round to two decimal places) d). A bond selling to yield 12.5% where the form's tax rate is 34%. dd). The cost of capital from this bond debt is _% (round to two decimal places) 3). Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this, compute the cost of capital for the firm for the following: a). A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 12.2%. the bonds have a current market value of $1,127 and will mature in 10 years. The firm's tax rate is 34%. aa). The cost of capital from this bond debt is _%. (round to two decimal places.) b). If the firm's bonds are not frequently traded, how would you go about determining a cost of debt for this company? (multiple choice) bb). A) It is standard practice to estimate the cost of debt using the yield to maturity on a portfolio of bonds with a similar credit rating and maturity as the firm's outstanding debt. B). It is standard practice to estimate the cost of debt using the yield to maturity on a treasury bond of the same maturity. C). It is standard practice to estimate the cost of debt using the average coupon rate on a portfolio of bonds with a similar credit rating and maturity as the firm's outstanding debt. D). It is standard practice to estimate the cost of debt using the bond's coupon rate and adjust it for inflation. c). A new common stock issue that paid a $1.79 devidend last year. The par value of the stock is $14, and the firm's dividends per share have grown at a rate of 7.4% per year.. This growth rate is expected to continue into the forseeable future. The price of this stock is now $27.05. cc). The cost of capital from the common equity is _% )round to two decimal places) d). A preferred stock paying a 10.4% dividend on a $126 par value. The preferred shares are currently selling for $150.92. dd). The cost of the preferred stock is _%
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FIN_370_questions_-_3_qs.xlsx
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