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

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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