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REVIEW PROBLEMS
WEEK 5
Question 1:
beta debt Novack 0.5 WACC 6.65000% = (e/v) * r equity + (d/v) * (1 - tax rate)* r debt
beta debt Palmer 0.25
Eq beta Palmer 1.2 r equity Novack 7.567% = risk free + Beta equity * MRP
d/ v Palmer 40%
risk free 4% Beta equity Novack 0.713333333 = beta assets - (D/E) *(beta assets - b d
MRP 5%
tax rate 40% r debt novack 6.50%
Question 2:
Zinger Corporation issued convertible bonds in 2000 due in 2012 with the face value of $1000. The bonds were set to
be convertible at the conversion ratio of 25. When Zinger issued its convertible bonds, its common stock was trading at
$30 per share. Calculate the conversion price and conversion premium:
Question 3:
Samuel Industries has $20 million in excess cash and no debt. Samuel has 10 million shares outstanding.
The firm expects to generate additional free cash flows of $48 million per year in subsequent years.
Samuel's unlevered cost of capital is 12%.
b.
Samuel's management is thinking about paying out all its cash to investors in the form of dividend.
The stock will go ex-dividend on December 12.
What is Samuel's price just before the stock goes ex-dividend?