Ace Repair

1600 words 7 pages
Ace Repair:
Q1:
A. List:
WACC= (%of debt) (after-tax cost of debt) + (% of preferred stock)(Cost of preferred stock) + (% of common equity) (Cost of common equity) =WdRd * (1-T) + WpsRps + WceRs
Wd – the weights used for debt,
Wps – the weights used for preferred equity,
Wce – the weights used for common equity, rd – before-tax cost of debt, rps – cost of preferred stock, rs – cost of common equity,
T – marginal tax rate

B.
Book weight of debt=long-term debt/ total capital=30.94%
Book weight of preferred stock= Preferred stock / total capital=7.73%
Book weight of common equity= common equity/ total capital=61.33%

C.
The weight of debt= 80.77%
The weight of preferred stock=16.32%
The weight of common stock=2.9%
…show more content…
E.
A market risk premium means the difference between the expected return on a market portfolio and the risk-free rate. There are three alternative ways to obtain market risk premium:
1) Required market risk premium: the return of a portfolio over the risk-free rate (such as that of treasury bonds) required by an investor;
2) Historical market risk premium: the historical differential return of the market over treasury bonds; and
3) Expected market risk premium: the expected differential return of the market over treasury bonds.
The market risk premium RPm = Rm – Rrf; If the market is in equilibrium, the expected return is equal to the market required return: R*m = Rm: Expected rate of return = R*m = D1 / Po +g = Rrf + RPm = Rm = required rate of return.

Q6:
A.
last dividend = 0.46 g = growth rate = 16%
Po = stock price = 30.5
D1 = Do * (1+g)
Rs = R*s = D1 / Po + expected g= 17.75%
B.
g = (Retention rate)*(ROE) = (1 – Payout rate)*(ROE) = (1 – 20%)*(18%) = 14.40%
Do = last dividend = 0.46
Po = stock price = 30.5 cost of retained earnings = 16.13%
C.
|Year |E.DPS |F.EPS |G. Logarithm |
|1991 |0.12

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