LELA Co.

has been assigned the task of determining the cost of capital for her division of the firm. Her
first step is to determine the cost of debt. The firm has P1,000 par value bonds outstanding that have an
annual coupon rate of 10.00% and makes semiannual payments. These bonds have twenty-three years
remaining to maturity and currently sell for P1,153. What is the yield-to-maturity on these bonds?
EILA Inc. has a target capital structure of 30% debt, 15% preferred stock, and 55% common equity. The
company's after-tax cost of debt is 7%, its cost of preferred stock is 11%, its cost of retained earnings is
15%, and its cost of new common stock is 16%. The company stock has a beta of 1.5 and the company's
marginal tax rate is 35%. What is the company's weighted average cost of capital if retained earnings are
used to fund the common equity portion?
LEN is considering buying a share of stock in a firm that has the following two possible payoffs with the
corresponding probability of occurring. The stock has a purchase price of P100.00. You forecast that there
is a 40% chance that the stock will sell for P140.00 at the end of one year. The alternative expectation is
that there is a 60% chance that the stock will sell for P60.00 at the end of one year. What is the standard
deviation of returns on this stock?
Your firm intends to issue new common stock. Your investment bankers have determined that the stock
should be offered at a price of P60.00 per share and that you should anticipate paying a dividend of P1.70
in one year. If you anticipate a constant growth in dividends of 4.50% per year and the investment banking
firm will take 8.00% per share as flotation costs, what is the required rate of return for this issue of new
common stock?