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50. Crab Cakes Ltd. has 5 million shares of stock outstanding selling at $15 per share and an
issue of $10 million in 10 percent, annual coupon bonds with a maturity of 25 years, selling at 97
percent of par ($1,000). If Crab Cakes' weighted average tax rate is 30 percent, its next dividend
is expected to be $1.00 per share, and all future dividends are expected to grow at 5 percent per
year, indefinitely, what is its WACC?
51. Pumpkin Pie Industries has 5 million shares of common stock outstanding, 1 million
shares of preferred stock outstanding, and 10 thousand bonds. If the common shares are selling
for $50 per share, the preferred shares are selling for $31 per share, and the bonds are selling for
98 percent of par ($1,000), what would be the weights used in the calculation of Pumpkin Pie's
WACC for common stock, preferred stock, and bonds, respectively?
52. Sea Shell Industries has 50 million shares of common stock outstanding, 10 million
shares of preferred stock outstanding, and 100 thousand bonds. If the common shares are selling
for $19 per share, the preferred shares are selling for $8.50 per share, and the bonds are selling
for 97 percent of par ($1,000), what would be the weights used in the calculation of Sea Shell's
WACC for common stock, preferred stock, and bonds, respectively?
53. Rings N Things Industries has 40 million shares of common stock outstanding, 20 million
shares of preferred stock outstanding, and 50 thousand bonds. If the common shares are selling
for $25 per share, the preferred shares are selling for $15 per share, and the bonds are selling for
100 percent of par ($1,000), what would be the weights used in the calculation of Rings' WACC
for common stock, preferred stock, and bonds, respectively?
54. Accessory Industries has 2 million shares of common stock outstanding, 1 million shares
of preferred stock outstanding, and 100 thousand bonds. If the common shares are selling for $22
per share, the preferred shares are selling for $10.50 per share, and the bonds are selling for 96
percent of par ($1,000), what would be the weights used in the calculation of Accessory's WACC
for common stock, preferred stock, and bonds, respectively?
55. Suppose that Tan Lines' common shares sell for $20 per share, are expected to set their
next annual dividend at $1.00 per share, and that all future dividends are expected to grow by 5
percent per year, indefinitely. If Tan Lines faces a flotation cost of 10 percent on new equity
issues, what will be the flotation-adjusted cost of equity?
56. Suppose that Wave Runners' common shares sell for $35 per share, are expected to set
their next annual dividend at $2.00 per share, and that all future dividends are expected to grow
by 10 percent per year, indefinitely. If Wave faces a flotation cost of 15 percent on new equity
issues, what will be the flotation-adjusted cost of equity?
57. Suppose that Beach Blanket's common shares sell for $55 per share, are expected to set
their next annual dividend at $3.00 per share, and that all future dividends are expected to grow
by 8 percent per year, indefinitely. If Beach faces a flotation cost of 10 percent on new equity
issues, what will be the flotation-adjusted cost of equity?
58. Suppose that Tan Lotion's common shares sell for $18 per share, are expected to set
their next annual dividend at $1.00 per share, and that all future dividends are expected to grow
by 7 percent per year, indefinitely. If Tan Lotion faces a flotation cost of 12 percent on new equity
issues, what will be the flotation-adjusted cost of equity?
59. A firm has 1,000,000 shares of common stock outstanding, each with a market price of
$10.00 per share. It has 15,000 bonds outstanding, each selling for $900 (with a face value of
$1,000). The bonds mature in 15 years, have a coupon rate of 10 percent, and pay coupons semi-
annually. The firm's equity has a beta of 1.5, and the expected market return is 20 percent. The
tax rate is 35 percent and the WACC is 16 percent. What is the risk-free rate?
60. A firm has 4,000,000 shares of common stock outstanding, each with a market price of
$12.00 per share. It has 25,000 bonds outstanding, each selling for $980. The bonds mature in 20
years, have a coupon rate of 9 percent, and pay coupons semi-annually. The firm's equity has a
beta of 1.5, and the expected market return is 15 percent. The tax rate is 30 percent and the
WACC is 15 percent. What is the risk-free rate?
61. An all-equity firm is considering the projects shown as follows. The T-bill rate is 3
percent and the market risk premium is 6 percent. If the firm uses its current WACC of 12 percent
to evaluate these projects, which project(s) will be incorrectly rejected?
62. An all-equity firm is considering the projects shown as follows. The T-bill rate is 4
percent and the market risk premium is 8 percent. If the firm uses its current WACC of 13 percent
to evaluate these projects, which project(s) will be incorrectly accepted?
63. An all-equity firm is considering the projects shown as follows. The T-bill rate is 4
percent and the market risk premium is 9 percent. If the firm uses its current WACC of 14 percent
to evaluate these projects, which project(s) will be incorrectly rejected?
64. Diddy Corp. stock has a beta of 1.0, the current risk-free rate is 5 percent, and the
expected return on the market is 15.5 percent. What is Diddy's cost of equity?
65. JaiLai Cos. stock has a beta of 1.7, the current risk-free rate is 6.2 percent, and the
expected return on the market is 11 percent. What is JaiLai's cost of equity?
66. Oberon Inc. has a $20 million ($1,000 face value) 10-year bond issue selling for 99
percent of par that pays an annual coupon of 7.25 percent. What would be Oberon's before-tax
component cost of debt?
67. KatyDid Clothes has a $150 million ($1,000 face value) 15-year bond issue selling for 106
percent of par that carries a coupon rate of 8 percent, paid semi-annually. What would be
KatyDid's before-tax component cost of debt?
68. KatyDid Clothes has a $150 million ($1,000 face value) 15-year bond issue selling for 86
percent of par that carries a coupon rate of 8 percent, paid semi-annually. What would be
KatyDid's before-tax component cost of debt?
