Chapter 3: Weighted Average Cost of Capital Flashcards

(35 cards)

1
Q

Cost of Common Equity 2 approaches

A
  1. Dividend Growth Model
  2. Security Market Line (SML) / Capital Asset Pricing Model (CAPM)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Rate of return that investors holding shares in a firm required.

A

Cost of equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

The 3 cost of equity

A
  1. Cost of Common Equity (Re)
  2. Cost of Debt (Kd)
  3. Cost of Preffered Stock (Kp)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

The formula of getting Common stock (Re) using discounted growth model

A

Re = (D1 / Po) + g

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

This rate of dividend we promised to the preferred stockholders.

A

Cost of Preferred Stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

The current price of Preffered stock is

A

Po = d/Kp

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Formula of getting Kp

A

Kp = d/Po

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Is the interest rate collected by the creditors of the fund. It must be cost of debt after tax.

A

Kd after tax = Kd (1 - t)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

The formula for the Capital Asset Pricing Model

A

Re = Rf + B (Rm-Rf)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Formula of getting of Risk Premiumq

A

Rp = Rm - Rf

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Suppose that Jollibee Foods Corp. is expected to pay a dividend of P0.70 per share next year and average dividend growth is found at 11.06% and current stock price (Po) is P136/share.

What is the Re?

A

found in Notebook

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

ABC price shares is at P40/share and expects dividend to grow at 5% each year. It paid dividend last year at P4/shares. Determine Re.

A

Found in notebook

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

The current price of XYZ Company is P300 per share. It will declare and pay dividend at P30 share next year. Average dividend growth is at 5%.

What is the cost of common of equity (Re)?

A

Found in notebook

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

ABC Company’s historical data on dividends:

2018= P32/share
2019 = P33
2020 = P33.50
2021 = P34.50
2022 = P35

a.) What is dividend growth rate (g)?

A

Found in notebook

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

ABC Company’s historical data on dividends:

2018= P32/share
2019 = P33
2020 = P33.50
2021 = P34.50
2022 = P35

b.) Assume Po = P400 per share and approved dividends is P35.20 to be distributed the ff. quarter. Find Re on Common Equity.

A

Found in Notebook

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Suppose jollibee Foods Corp. is expected to pay dividend of P0.70/share next year and the current price is P136.00/share.

Find Re.

2019= 0.62
2018 = 0.60
2017 = 0.56
2016 = 0.45
2015 = 0.41

A

Found in Notebook

17
Q

ABC Limited borrowed 200M from Bank D. The interest charged is 8% per year. Find Kd after tax. Tax is 30%.

A

Found in Notebook

18
Q

In Beta, beyond 1.00 is ______

19
Q

In Beta, below 1.00 is ________

20
Q

The current price of the stock is P120 per share. The expected return market is 12%. This portfolio shows a beta of 0.90. The Philippine T-bills is at 4.5%.

A

Found in notebook

21
Q

The current price of the stock is P120 per share. The expected return market is 12.5%. This portfolio shows a beta of 0.75. The Philippine T-bills is at 3.5%.

A

found in notebook

22
Q

ABC Limited borrowed 200M from Bank D. The interest charged is 12% per year. Find Kd after tax. Tax is 30%.

A

Foun in Notebook

23
Q

A 8.5% preferred stock is selling at P155/share. Find the cost of preferred equity. (Assume Par Values is P100).

A

Found in Notebook

24
Q

The current price of the stock is P380 per share. The expected return on the market is 11.5%. This portfolio shows a beta of 1.22. The Philippine T-bills is at 3.5%.

Compute Re.

A

Found in Paper

25
ABC Limited borrowed 200M from Bank D. The interest charged is 10.5% per year. Find Kd after tax. Tax is 30%. Find Kd.
Found in Paper
26
A 12.8% preffered stock is selling at P160/share. Find the cost of preferred equity. (Par Value is P120). Find Kp.
Found in Paper
27
Capital Structure Common Equity P500B, Preferred Equity P100B, and Debt Outstanding is P200B. Find the WACC using data from 24, 25, & 26.
Found in Paper
28
Capital Structure Common Equity P15M (7.03%), Preferred Equity P5M (3.75%), and Debt Outstanding is P10M (5.6%).
Found in Notebook
29
Problem 1: 1. Sunlight Company's Price share is at P50 per share. It paid dividend of P4 per share last year and expects that dividends will continue to grow at 3%. Calculate the cost of equity on common stocks (Re).
Found in Paper
30
Problem 1: 2. Sunlight Company borrowed P50M from Bank D. The interest charged is 7.5% per year. Find Kd after tax. Tax is 30%.
Found in Paper
31
Problem 1: 3. A 5% preferred stock is selling at P200/share. Find the cost of preferred equity. Par Value is assumed to be P100 per share.
Fond in Paper
32
Problem 1: 4. Below is the Capital Structure: Common Equity: 60M Preferred P20M Outstanding Debt P20M Using the Re, Kp, and Ke, computed in 1-3, find the WACC.
Found in Paper
33
Problem 2 An investor is contemplating a stock worth $100 per share today that pays a 3% annual dividend. The stock has a beta compared to the market of 1.3, which means it is riskier than a market portfolio. Also, assume that the risk-free rate is 3% and this investor expects the market price at 8%. An investor is contemplating a stock worth $500 per share today that pays a 3% annual dividend. The stock has a beta compared to the market of 1.25, which means it is riskier than a market portfolio. Also, assume that the risk-free rate is 3.5% and this investor expects the market price at 8%. Compute Re.
Found in paper
34
Compute the average dividend growth rate if the following data are available: Dividend per share was 2019 = P1.50 2020 = P1.89 2021 = P2.10 2022 = P2.12
Found in Paper
35
Who are you?
A CPA, Lawyer, Doctor, Master degree holder, and has 3 certifications in my belt.