FIN 5080 Quiz 6EC

Question 1
1 out of 1 points

The 8 percent annual coupon bonds of the ABC Co. are selling for $880.76. The bonds mature in 10 years. The bonds have a par value of $1,000 and payments are made semi-annually? What is the before-tax cost of debt?
Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

Selected Answer:
9.91
Correct Answer:
9.91
Answer range +/-
0.05 (9.86 - 9.96)

Response Feedback:
NPER = 10* 2
RATE = ? * 2 = Answer = 4.953 * 2 = 9.91%
PV = -880.76
PMT = 1000 * 8%/2 = 40
FV = 1000

Question 2
1 out of 1 points

ABC Industries will pay a dividend of $1 next year on their common stock. The company predicts that the dividend will increase by 5 percent each year indefinitely. What is the firm’s cost of equity if the stock is selling for $30 a share?
Enter your answer in percentages rounded off to two decimal points. DO not enter % in the answer box.

Selected Answer:
8.33
Correct Answer:
8.33 ± 0.5%

Response Feedback:
R = D1/Po + g
The dividend given is next period's dividend = D1

Question 3
0 out of 1 points

ABC Inc.'s perpetual preferred stock sells for $56 per share, and it pays an $9 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of $4 per share. What is the company's cost of preferred stock for use in calculating the WACC?
Note: Enter your answer rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Selected Answer:
23.21
Correct Answer:
17.31 ± 0.5%

Response Feedback:
Kp = Pref Div Amount/(Price - Floatation Costs)

Question 4
0 out of 1 points

ABC Industries will pay a dividend of $1 next year on their common stock. The company predicts that the dividend will increase by 5 percent each year indefinitely. What is the dividend yield if the stock is selling for $26 a share?
Enter your answer in