1. Estimating Company Value Using DDM with Increasing Perpetuity Assume that a companys dividends per share are projected to grow at 3% each year, its next years dividends per share is $1.40, and its cost of equity capital is 5%. Estimate the companys per share stock price. Round your answer to the nearest dollar.

Answer?

2. Estimating Cost of Debt Capital Assume that a companys financial statements report that its average outstanding debt totals $1.5 billion, and its total interest expense equals $120 million. If its tax rate is 35%, compute its cost of debt capital. Round answer to two decimal places (ex: 0.02345 = 2.35%)

Answer?

3. Estimating Cost of Capital Measures Sprint Nextel Corporation (S) has $24.3 billion in total debt (which approximates its market value.) Each year this debt costs the company about $1.5 billion in interest expense. The company's market capitalization approximates $17.2 billion, its market beta is estimated 2.12, and its marginal tax rate is 35%. Assume that the risk-free rate equals 5.3% and the market premium equals 5.7%. Rounding Instructions: Do not round until your final answers. Round answers to one decimal place.

(a) Estimate Sprint Nextel's cost of debt capital. Answer?

(b) Estimate Sprint Nextel's cost of equity capital. Answer%?

(c) Using your rounded answers from (a) and (b) above, estimate Sprint Nextel's weighted average cost of capital. Answer%?

4. Procter and Gamble (PG) has a June fiscal year-end. On June 30, 2006, analysts expected the company to pay $1.38 dividends per share in fiscal year 2007. The company's market beta is estimated to be 0.7. Assume that the risk-free rate is 5.4% and the market premium is 5%. During fiscal year 2006, the company's sales growth was 20.2%. However, analysis reveals that P&G's fiscal 2006 sales include eight months of sales from Gillette after its acquisition by P&G during 2006. Footnotes report pro forma sales that show what the income statement would have reported had Gillette's full-year sales been included in both 2005 and 2006specifically, P&G's sales growth would have been 4.4%.

(a) Estimate P&G's cost of equity capital using the CAPM model. (Round your answer to one decimal place.)

Answer=8.9%

(b) On June 30, 2006, the stock of P&G was priced at $55.60 per share. Infer the market expectation about the future growth rate of P&Gs dividend using the DDM model with an increasing perpetuity and the rounded cost of equity capital computed in (a). (Do not round until your final answer. Round your answer to one decimal place.)

Answer%?