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#1. (Defining capital structure...

#1. (Defining capital structure weights) Templeton Extended Care Facilities, Inc. is considering the acquisition of a chain of cemeteries for $440 million. Since the primary asset 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 $320 million and invest only $120 million in equity in the acquisition. What weights should Templeton use in computing the WACC for this acquisition?

The appropriate weight is _____ %. (Round to one decimal place.)

#2. (Individual or component costs of capital) 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 10.3%. The bonds have a current market value of $1,127 and will mature in 10 years. The firm’s marginal tax rate is 34%.

b. A new common stock issue that paid a $1.85 dividend last year. The firm’s dividends are expected to continue to grow at 6.9% per year forever. The price of the firm’s common stock is now $27.94.

c. A preferred stock paying a 9.3% dividend on a $101 par value.

d. A bond selling to yield 11.5% where the firm’s tax rate is 34%.

a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.3%. The bonds have a current market value of $1,127 and will mature in 10 years. The firm’s marginal tax rate is 34%.

The cost of capital from this bond debt is _____%. (Round to two decimal places.)

#3. (Individual or component costs of capital) 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 11.5%. The bond is currently selling for a price of $1,123 and will mature in 10 years. The firm’s tax rate is 34%.

b. If the firm’s bonds are not frequently traded, how would you go about determining a cost of debt for this company?

c. A new common stock issue that paid a $1.72 dividend last year. The par value of the stock is $16, and the firm’s dividends per share have grown 7.9% per year. This growth rate is expected to continue into the foreseeable future. The price of stock is now $27.04.

d. A preferred stock paying a 10.1% dividend on a $129 par value. The preferred shares are currently selling for $152.96.

e. A bond selling to yield 13.3% for the purchaser of the bond. The borrowing firm faces a tax rate of 34%.

a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11.5%. The bonds have a current market value of $1,123 and will mature in 10 years. The firm’s marginal tax rate is 34%.

The cost of capital from this bond debt is _____%. (Round to two decimal places.)

#4. (Defining capital structure weights) Templeton Extended Care Facilities, Inc. is considering the acquisition of a chain of cemeteries for $370 million. Since the primary asset 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 $290 million and invest only $80 million in equity in the acquisition. What weights should Templeton use in computing the WACC for this acquisition?

The appropriate weight is _____ %. (Round to one decimal place.)

#5. (Individual or component costs of capital) 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 10.5%. The bonds have a current market value of $1,121 and will mature in 10 years. The firm’s marginal tax rate is 34%.

b. A new common stock issue that paid a $1.81 dividend last year. The firm’s dividends are expected to continue to grow at 6.1% per year forever. The price of the firm’s common stock is now $27.76.

c. A preferred stock paying a 8.4% dividend on a $109 par value.

d. A bond selling to yield 11.6% where the firm’s tax rate is 34%.

a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.5%. The bonds have a current market value of $1,121 and will mature in 10 years. The firm’s marginal tax rate is 34%.

The cost of capital from this bond debt is _____%. (Round to two decimal places.)

#6. (Individual or component costs of capital) 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 11.6%. The bond is currently selling for a price of $1,128 and will mature in 10 years. The firm’s tax rate is 34%.

b. If the firm’s bonds are no

The appropriate weight is _____ %. (Round to one decimal place.)

#2. (Individual or component costs of capital) 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 10.3%. The bonds have a current market value of $1,127 and will mature in 10 years. The firm’s marginal tax rate is 34%.

b. A new common stock issue that paid a $1.85 dividend last year. The firm’s dividends are expected to continue to grow at 6.9% per year forever. The price of the firm’s common stock is now $27.94.

c. A preferred stock paying a 9.3% dividend on a $101 par value.

d. A bond selling to yield 11.5% where the firm’s tax rate is 34%.

a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.3%. The bonds have a current market value of $1,127 and will mature in 10 years. The firm’s marginal tax rate is 34%.

The cost of capital from this bond debt is _____%. (Round to two decimal places.)

#3. (Individual or component costs of capital) 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 11.5%. The bond is currently selling for a price of $1,123 and will mature in 10 years. The firm’s tax rate is 34%.

b. If the firm’s bonds are not frequently traded, how would you go about determining a cost of debt for this company?

c. A new common stock issue that paid a $1.72 dividend last year. The par value of the stock is $16, and the firm’s dividends per share have grown 7.9% per year. This growth rate is expected to continue into the foreseeable future. The price of stock is now $27.04.

d. A preferred stock paying a 10.1% dividend on a $129 par value. The preferred shares are currently selling for $152.96.

e. A bond selling to yield 13.3% for the purchaser of the bond. The borrowing firm faces a tax rate of 34%.

a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11.5%. The bonds have a current market value of $1,123 and will mature in 10 years. The firm’s marginal tax rate is 34%.

The cost of capital from this bond debt is _____%. (Round to two decimal places.)

#4. (Defining capital structure weights) Templeton Extended Care Facilities, Inc. is considering the acquisition of a chain of cemeteries for $370 million. Since the primary asset 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 $290 million and invest only $80 million in equity in the acquisition. What weights should Templeton use in computing the WACC for this acquisition?

The appropriate weight is _____ %. (Round to one decimal place.)

#5. (Individual or component costs of capital) 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 10.5%. The bonds have a current market value of $1,121 and will mature in 10 years. The firm’s marginal tax rate is 34%.

b. A new common stock issue that paid a $1.81 dividend last year. The firm’s dividends are expected to continue to grow at 6.1% per year forever. The price of the firm’s common stock is now $27.76.

c. A preferred stock paying a 8.4% dividend on a $109 par value.

d. A bond selling to yield 11.6% where the firm’s tax rate is 34%.

a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.5%. The bonds have a current market value of $1,121 and will mature in 10 years. The firm’s marginal tax rate is 34%.

The cost of capital from this bond debt is _____%. (Round to two decimal places.)

#6. (Individual or component costs of capital) 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 11.6%. The bond is currently selling for a price of $1,128 and will mature in 10 years. The firm’s tax rate is 34%.

b. If the firm’s bonds are no

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