Professional Documents
Culture Documents
CHAPTER 15 - Answer
CHAPTER 15 - Answer
CHAPTER 15
Problems
Problem 1
P122
= P985
0.1239 or 12.39%
=
Problem 2
The cost of new preferred share is:
P4.50
kp =
P47.50
= 0.0947 or 9.47%
Problem 3
(a) The compound annual growth rate (FVIF i,n) at which dividends grew from P1.98 to
P2.50 over 4 years is as follows:
Ending dividend
FVIF i,4 = Beginning dividend
P2.50
= P1.98
= 1.263
15-1
(b) The expected dividends to be received during 20x5, D1, equal P2.65 (1.06 x P2.50).
The cost of retained earnings is:
P2.65
kr = P40.00 + 0.06
= 0.0663 + 0.06
= 0.1263 or 12.63%
P2.65
ks = P40.00 − P3.00 + 0.06
= 0.0716 + 0.06
= 0.1316 or 13.16%
Problem 4
= 0.050 + 0.076
= 0.1260 or 12.60%
Problem 5
The cost of retained earnings using the generalized risk premium method is:
kr = 0.100 + 0.025
= 0.1250 or 12.50%
Problem 6
P6.00
kr =
P40.00
= 0.1500 or 15.00%
15-2
Problem 7
Problem 8
P2,000,000 P500,000
Long-term debt = P4,000,000 Preferred share = P4,000,000
= 0.500 = 0.125
P1,500,000
Ordinary equity share = P4,000,000
= 0.375
The firm’s weighted average cost of capital is:
P1,800,000 P600,000
Long-term debt = P6,000,000 Preferred share = P6,000,000
= 0.30 = 0.10
P3,600,000
Ordinary equity share = P6,000,000
= 0.60
15-3
The firm’s weighted average cost of capital is:
Problem 9
P26,000,000
BPi = 0.65
= P40,000,000
1. D 4. C 7. C 10. A
2. A 5. D 8. D
3. C 6. A 9. C
15-4