Questions from Corporate Finance

Q: Avicorp has a $10 million debt issue outstanding, with a

Avicorp has a $10 million debt issue outstanding, with a 6% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the debt matures in five years. It is currently pri...

Q: OpenSeas, Inc., is evaluating the purchase of a new cruise

OpenSeas, Inc., is evaluating the purchase of a new cruise ship. The ship would cost $500 million, but would operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $70...

Q: Laurel, Inc., has debt outstanding with a coupon rate of

Laurel, Inc., has debt outstanding with a coupon rate of 6% and a yield to maturity of 7%. Its tax rate is 35%. What is Laurel’s effective (after-tax) cost of debt?

Q: Dewyco has preferred stock trading at $50 per share. The

Dewyco has preferred stock trading at $50 per share. The next preferred dividend of $4 is due in one year. What is Dewyco’s cost of capital for preferred stock?

Q: Steady Company’s stock has a beta of 0.20. If

Steady Company’s stock has a beta of 0.20. If the risk-free rate is 6% and the market risk premium is 7%, what is an estimate of Steady Company’s cost of equity?

Q: HighGrowth Company has a stock price of $20. The firm

HighGrowth Company has a stock price of $20. The firm will pay a dividend next year of $1, and its dividend is expected to grow at a rate of 4% per year thereafter. What is your estimate of HighGrowth...

Q: Slow ’n Steady, Inc., has a stock price of $

Slow ’n Steady, Inc., has a stock price of $30, will pay a dividend next year of $3, and has expected dividend growth of 1% per year. What is your estimate of Slow ’n Steady’s cost of equity capital?...

Q: If Roundtree from Problem 7 decides to issue an extra 500,

If Roundtree from Problem 7 decides to issue an extra 500,000 shares (for a total of 2.3 million shares), how much total money will it raise? In Problem 7: Roundtree Software is going public using a...

Q: Three years ago, you founded Outdoor Recreation, Inc., a

Three years ago, you founded Outdoor Recreation, Inc., a retailer specializing in the sale of equipment and clothing for recreational activities such as camping, skiing, and hiking. So far, your compa...

Q: Your investment bankers price your IPO at $15 per share for

Your investment bankers price your IPO at $15 per share for 10 million shares. If the price at the end of the first day of trading is $17 per share, a. What was the percentage underpricing? b. How muc...