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Question 7 a) Determine the rand amount of the bond. Answer 2 b) Determine the bond's current yield. Answer 2 c) Is the bond selling at par, at a discount, or at a premium? Why? Answer 3 d) Compare the bond's current yield calculated in part b) to its YTM and explain why they differ. Answer 4 Question 8 Firm issues preferred stock at Par value Issuing and flotation costs Tax rate What is the cost of preferred stock? Answer 9% 83 2 37 % % 2 Question 9 Dividend just paid Stock price Growth rate flotation costs What is cost of new common stock? Answer 8 52 5% 9 % 2. Question 10 SA refers to South Africa 3-month SA treasury bill rate beta coefficient market risk premium What is the cost of retained earnings? Answer 2 % 0,491289463 8 % % 2 Question 11 1463490 39 % EACS Constant payout ratio Target capital structure Long-term debt Preferred stock 40 % 9 % 51 % Equity What capital budget could the firm support without issuing new common stock? Answer 2 Question 12 15 years Maturity Coupon rate Bond price Tax rate Determine the after-tax cost of debt Answer 14 % 1286 39 % % 2 N Question 13 Please refer to Question 8, 9, 10, 11 and 12 above. Assume you have been presented with these values and have to calculate the WACC for your firm. Thus, based on the values presented, determine the WACC prior to the firm exhausting retained earnings. Determine the WACC after the firm had exhausted retained earnings Answer Prior % Post % 3 3 w Question 7 a) Determine the rand amount of the bond. Answer 2 b) Determine the bond's current yield. Answer 2 c) Is the bond selling at par, at a discount, or at a premium? Why? Answer 3 d) Compare the bond's current yield calculated in part b) to its YTM and explain why they differ. Answer 4 Question 8 Firm issues preferred stock at Par value Issuing and flotation costs Tax rate What is the cost of preferred stock? Answer 9% 83 2 37 % % 2 Question 9 Dividend just paid Stock price Growth rate flotation costs What is cost of new common stock? Answer 8 52 5% 9 % 2. Question 10 SA refers to South Africa 3-month SA treasury bill rate beta coefficient market risk premium What is the cost of retained earnings? Answer 2 % 0,491289463 8 % % 2 Question 11 1463490 39 % EACS Constant payout ratio Target capital structure Long-term debt Preferred stock 40 % 9 % 51 % Equity What capital budget could the firm support without issuing new common stock? Answer 2 Question 12 15 years Maturity Coupon rate Bond price Tax rate Determine the after-tax cost of debt Answer 14 % 1286 39 % % 2 N Question 13 Please refer to Question 8, 9, 10, 11 and 12 above. Assume you have been presented with these values and have to calculate the WACC for your firm. Thus, based on the values presented, determine the WACC prior to the firm exhausting retained earnings. Determine the WACC after the firm had exhausted retained earnings Answer Prior % Post % 3 3 w

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