Question

12) Albert's recently paid its annual dividend of $1.98 per share. At that time, the firm announced that all future dividends will be increased by 2.2 percent annually. What is the firm's cost of equity if the stock is curently selling for $28.40 a share? A) 11.32 percent В) 9.33 реrcent C) 11.08 percent D) 10.06 percent E) 10.47 percent 12) 13) 13) The cost of equity for RJ Corporation is 8.4 percent and the debt-equity ratio is .6. The expected retum on the market is 10.4 percent and the risk-free rate is 3.8 percent. Using the common assumption for the debt beta, what is the asset beta? A) 62 B).70 C).59 D) 44 E) .67 selling at their par value of yielding a pretax 8.6 percent. The 14) Jack's Construction Co. has 80 bonds outstanding that are $1.000 each. Bonds with similar characteristics are 14) firm also has 4,000 shares of common stock outstanding. The stock has a beta of 1.1 and sells for $40 a share. The U.S. T-bill is yielding 4 percent, the market risk premium is 8 percent, and the fim's tax rate is 21 percent. What is the fim's weighted average cost of capital assuming its eamings are sufficient to classify all interest as a tax-deductible expense? A) 10.80 percent В) 10.10 регсent C) 10.65 percent D) 11.40 percent E) 11.39 percent 15) Sound Systems has 200 shares of common stock outstanding at a market price of $37 share. The firm recently paid an annual dividend in the amount of $1.20 per share and 15) a has a dividend growth rate of 4 percent. The firm also has 5 bonds outstanding with a face value of $1,000 per bond that are selling at 99 percent of par. The bonds have a coupon rate of 6 percent and a yield to maturity of 6.7 percent. All interest is tax deductible. If the tax rate is 21 percent, what is the weighted average cost of capital? А) 6.87 реrcent B) 7.08 percent C) 5.93 percent D) 6.54 percent E) 6.37 percent

Answer 1

(12) Current Dividend = D0 = $ 1.98, Perpetual Dividend Growth Rate = g = 2.2 % and Current Stock Price = P0 = $ 28.4

Expected Dividend = D1 = D0 x (1+g) = 1.98 x 1.022 = $ 2.02356

Let the cost of equity be r

Therefore, r = (D1/P0) + g = (2.02356/28.4) + 0.022 = 0.09325 or 9.325 % ~ 9.33%

Hence, the correct option is (b)

NOTE: Please raise separate queries for solutions to the remaining unrelated questions, as one query is restricted to the solution of only one complete question with up to four sub-parts.