Computer applications in finance fin 3450 assignment # 3 [50 points;


FIN 3450
[50 Points; Due on 8/8/2018] [TEAM ASSIGNMENT]
USE Excel worksheets to show all your work

1.  A firm’s stock has a beta of 0.9; the expected return on the market is 10%; and the risk-free
 rate is 5%. What is the expected rate of return on this stock?

2.  A firm’s stock has a beta of 1.2; the expected return on the market is 14%; and the risk-free
 rate is 4%. What is the expected rate of return on this stock?


3. The Mountaineer Airline Company has consulted with its investment bankers and determined

that they could issue new debt with a yield of 8%. If Mountaineer ‘ marginal tax rate is 39%,

what is the after-tax cost of debt to Mountaineer?

4. The Blue Dog Company has common stock outstanding that has a current price of $20 per

share and a $0.50 dividend. Blue Dog’s dividends are expected to grow at a rate of 3% per

year, forever. The expected risk-free rate of interest is 2.5%, whereas the expected market risk

premium is 5%. The beta on Blue Dog’s stock is 1.2.

a. What is the cost of equity for Blue Dog using the dividend valuation model?

b. What is the cost of equity for Blue Dog using the capital asset pricing model?

5. Given the following data for Water’s Beginning firm:

– 1 million shares of common stock outstanding: price $12 per


– The firm’s outstanding bonds have ten years to maturity, a total

face value of debt = $5 million, face value per bond of $1,000,

current price = $985 with a coupon rate of 10%.

– The risk-free rate is 7%, and analysts’ expected return for the

market is 14%.

– Water’s Beginning stock has a beta of 1.2 and is in the 34%

marginal tax bracket.

– What’s the WACC?


6. Johnson Industries finances its projects with 40% debt, 10% preferred stock and 50%

common stock.

The company can issue bonds at a YTM of 8.4%

The cost of preferred stock is 9%.

The company’s common stock currently sells for $30 per share.

Next years dividend is expected to be $2.12 and is expected to grow at 6%per year


The company’s tax rate is 30%.

What is the company’s WACC using internal equity (retained earnings)? 

7.  AMR, parent company of American Airlines, is considering buying a fleet of new planes.

the CFO, wants to know what the firm’s cost of capital is going to be before

the company makes a decision. AMR is currently capitalized with 40% debt, 50% equity,

and 10% preferred stock and has no plans to change these percentages. AMR bonds

($1000 maturity value) currently sell for $949, have 16 years to maturity, and have a 12%

coupon rate with interest paid annually. AMR’s preferred stock currently sells for

$80 and has an annual dividend of $11. AMR’s common stock has a current price of $85

and next year’s dividend is expected to be $7. The firm’s earnings and dividends are

expected to grow at an annual rate of 6.5% indefinitely. The firm’s marginal tax rate is

40%. What is the firm’s cost of capital (WACC) using internal equity? 

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more