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A stock that pays a dividend of $1
A stock that pays a dividend of $1.13 closed at $72 on the cum-dividend date. If the personal tax rate of the marginal investor is 35%, what would you expect the stock to open at on the ex-dividend date, all else equal? 71.27 0 72.00 O 70.87 O 70.47
A firm has a market value of $450 million, $150 million of which is debt. Its equity beta is 1.5, and the beta of the debt is 0.2. The firm pays taxes at the marginal rate of 35%. The expected return on the market is 11%, and the relevant risk-free rate is 3%. What is the firm's WACC? Round your answer to the nearest tenth of a percent. O 18.0% O 12.0% 11.0% 0 7.2%
A project costs $400000 today and is expected to return 11% before corporate income taxes. The appropriate after-tax cost of capital is 9%, and the firm pays taxes at the marginal rate of 40%. What is this project's NPV? Round your answer to the nearest dollar. (8,807) 1,938 0 (9,600) 0 24,220
Expert Solution
Q1) The correct answer is option A) 71.27
Working-
Ex - Dividend Price = before Price - Tax adjusted Dividends
= 72 - 1.13 * (1-35%)
= 72 - 0.7345
= 71.27
Q2) The correct answer is option C) 11%
Working-
Proportion of debt = 150/450
=0.333
Proportion of equity=1-0.33=0.667
Cost of equity = Risk free + Equity beta * (Market return-risk free)
=3%+1.5*(11%-3%)
=15%
Cost of debt = Risk free + Debt beta * (market return-risk free)
=3%+0.2*(11%-3%)
=4.6%
So Firm's WACC = 0.333*4.6%*(1-35%)+0.667*15%
=11%
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