1.
Excelor stock is expected to pay $2.80 per share as its next annual dividend. The firm has a policy of increasing the dividend by 10.0 percent annually. The stock has a market price of $13.61 and a beta of 2.6. The market risk premium is 8.54 percent and the risk-free rate is 4.80 percent. What is the cost of equity? |
27.71 percent
28.14 percent
29.18 percent
28.79 percent
2.
The 13.50 percent preferred stock of Ajax Unlimited is selling for $93.30 a share. What is the cost of preferred stock if the risk-free rate is 4.45 percent? |
17.66 percent
14.47 percent
18.27 percent
13.53 percent
1. D. 28.79 percent
Dividend growth: ($2.80 / $13.61) + 0.10 = 0.3057
CAPM: 0.0480 + 2.6(0.0854) = 0.2700
Cost of equity = (0.3057 + 0.2700) / 2 = 28.79 percent
2. B. 14.47 percent
Cost of preferred = (0.1350 × $100) / $93.30 = 14.47 percent
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