Question Details

Castro Chemical Company sold a noncallable bond several years ago 



1.	Scanlon Inc.'s CFO hired you as a consultant to help her estimate the cost of capital.  You have been provided with the following data:  rRF = 4.10%; RPM = 5.25%; and b = 1.30.  Based on the CAPM approach, what is the cost of equity from retained earnings?
a.	9.67%
b.	9.97%
c.	10.28%
d.	10.60%
e.	10.93%
2.	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 $1,075, 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?
a.	4.35%
b.	4.58%
c.	4.83%
d.	5.08%
e.	5.33%
3.	Sorensen Systems Inc. is expected to pay a $2.50 dividend at year end (D1 = $2.50), the dividend is expected to grow at a constant rate of 5.50% a year, and the common stock currently sells for $52.50 a share.  The before-tax cost of debt is 7.50%, and the tax rate is 40%.  The target capital structure consists of 45% debt and 55% common equity.  What is the company- WACC if all the equity used is from retained earnings?
a.	7.07%
b.	7.36%
c.	7.67%
d.	7.98%
e.	8.29%
4.	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 11.25%, and the tax rate is 40%.  The firm will not be issuing any new stock.  What is Quigley's WACC?
a.	8.15%
b.	8.48%
c.	8.82%
d.	9.17%
e.	9.54%




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