1. Calculating Cost of Equity The Wind Rider Co. just issued a dividend of $2.10 per share on its common stock. The company is expected to maintain a constant 7 percent growth rate in its dividends indefinitely. If the stock sells for $40 a share, what is the company’s cost of equity?
2. Calculating Cost of Equity The Tubby Ball Corporation’s common stock has a beta of 1.15.If the risk-free rate is 5 percent and the expected return on the market is 12 percent, what is
Tubby Ball’s cost of equity capital?
3. Calculating Cost of Equity Stock in Parrot head Industries has a beta of 1.10. The market risk premium is 8 percent, and T-bills are currently yielding 5.5 percent. Parrot head’s most recent dividend was $2.20 per share, and dividends are expected to grow at a 5 percent annual rate indefinitely. If the stock sells for $32per share, what is your best estimate of Parrot head’s cost of equity?
4. Estimating the DCF Growth Rate Suppose Massey Ltd. just issued a dividend of $.68 per share on its common stock. The company paid dividends of $.40, $.45, $.52, and $.60 per share in the last four years. If the stock currently sells for $12, what is your best estimate of the company's cost of equity capital?
5. Calculating Cost of Preferred Stock Holdup Bank has an issue of preferred stock with a $5 stated dividend that just sold for $92 per share. What is the bank’s cost of preferred stock?
6. Calculating Cost of Debt Legend, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 12 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 10 percent annually. What is Legend’s pretax cost of debt? If the tax rate is 35 percent, what is the after tax cost of debt?
7. Calculating Cost of Debt Jiminy’s Cricket Farm issued a 30-year, 9 percent semiannual bond
8 years ago. The bond currently sells for 105 percent of its face value. The company’s tax rate is 35 percent.

a. What is the pretax cost of debt?
b. What is the after-tax cost of debt?
c. Which is more relevant, the pretax or the after-tax cost of debt? Why?