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Please answer all questions in excel:P9-17Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted
Please answer all questions in excel:P9-17Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 40% long-term debt, 10% preferred stock, and 50% common stock equity (retained earnings, new common stock, or both). The firm’s tax rate is 40%.Debt The firm can sell for $980 a 10-year, $1,000-par-value bond paying annual interest at a 10% coupon rate. A flotation cost of 3% of the par value is required in addition to the discount of $20 per bond.Preferred stock Eight percent (annual dividend) preferred stock having a par value of $100 can be sold for $65. An additional fee of $2 per share must be paid to the underwriters.Common stock The firm’s common stock is currently selling for $50 per share. The dividend expected to be paid at the end of the coming year (2013) is $4. Its dividend payments, which have been approximately 60% of earnings per share in each of the past 5 years, were as shown in the following table.Year Dividend2015 $3.752014 3.502013 3.302012 3.152011 2.85It is expected that to attract buyers, new common stock must be underpriced $5 per share, and the firm must also pay $3 per share in flotation costs. Dividend payments are expected to continue at 60% of earnings. (Assume that Rr=Rs.)a. Calculate the after-tax cost of debt.b. Calculate the cost of preferred stock.c. Calculate the cost of common stock.d. Calculate the WACC for Dillon LabsP9–5 The cost of debt Gronseth Drywall Systems, Inc., is in discussions with its investment bankers regarding the issuance of new bonds. The investment banker has informed the firm that different maturities will carry different coupon rates and sell at different prices. The firm must choose among several alternatives. In each case, the bonds will have a $1,000 par value and flotation costs will be $30 per bond. The company is taxed at a rate of 40%. Calculate the after-tax cost of financing with each of the following alternatives.P8-27Portfolio return and beta Jamie Peters invested $100,000 to set up the followingportfolio 1 year ago. Asset Cost Beta at purchase Yearly income Value todayA $20,000 0.80 $1,600 $20,000B 35,000 0.95 1,400 36,000C 30,000 1.50 — 34,500D 15,000 1.25 375 16,500a. Calculate the portfolio beta on the basis of the original cost figures.b. Calculate the percentage return of each asset in the portfolio for the year.c. Calculate the percentage return of the portfolio on the basis of original cost,using income and gains during the year.d. At the time Jamie made his investments, investors were estimating that the marketreturn for the coming year would be 10%. The estimate of the risk-free rate of returnaveraged 4% for the coming year. Calculate an expected rate of return for each stockon the basis of its beta and the expectations of market and risk-free returns.e. On the basis of the actual results, explain how each stock in the portfolio performedrelative to those CAPM-generated expectations of performance. Whatfactors could explain these differences?