Finance final study guide

2228 words 9 pages
-Martin Industries just paid an annual dividend of $1.30 a share. The market price of the stock is $36.80 and the growth rate is 6.0 percent. What is the firm's cost of equity?
RE = [$1.30 × (1 + 0.060)] / $36.80 + 0.060 = 0.097446 = 9.74 percent (3)
- The Bet-r-Bilt Company has a 5-year bond outstanding with a 4.30 percent coupon. Interest payments are paid semi-annually. The face amount of the bond is $1,000. This bond is currently selling for 93 percent of its face value. What is the company's pre-tax cost of debt? (3)
-Jensen's Travel Agency has 9 percent preferred stock outstanding that is currently selling for $49 a share. The market rate of return is 15 percent and the firm's tax rate is 34 percent. What is Jensen's cost of
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The firm has decided to spend all of its excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?
Market value per share = Book value per share = $6,000 / 1,000 shares = $6 per share
Number of shares repurchased = $900 / $6 per share = 150 shares
Number of shares outstanding after the repurchase = 1,000 - 150 = 850 shares (2)
- A firm has a market value equal to its book value. Currently, the firm has excess cash of $8,500 and other assets of $17,500. Equity is worth $26,000. The firm has 500 shares of stock outstanding and net income of $2,000. What will the stock price per share be if the firm pays out its excess cash as a cash dividend?
Market value = Book value = ($26,000 – $8,500) / 500 shares = $35 per share (1)
- Murphy's, Inc. has 25,000 shares of stock outstanding with a par value of $1.00 per share. The market value is $12.00 per share. The balance sheet shows $68,500 in the capital in excess of par account, $25,000 in the common stock account, and $129,500 in the retained earnings account. The firm just announced a 11 percent (small) stock dividend. What will the balance in the capital in excess of par account be after the dividend?
Additional shares issued = 0.11 × 25,000 shares = 2,750 shares
Capital in excess of par per share = $12.00 market value – $1.00 par value = $11 excess of par per
New balance in capital in excess of par =

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