1) We consider 2 companies A and B whose economic activity is identical, but they differ in their financial structure. Their is equal to 1.2. The risk-free rate is 7% and the average market rate of return is 15%. The marginal tax rate is 20%. Firm A has not in debt and firm B has a debt equity mix of 30%. What is the cost of equity of company B?

a) 18.2%

b) None of these answers is correct

c)18.90%

d) 12%

2) An analyst gathers the following data to determine the attractiveness of a company's common stock:

Dividends per share in 2007: $2 Dividends per share in 2013: $3 Expected return on the market: 17% Expected nominal risk-free return: 9% Stock's beta: 1.8 Stock's market price as of the end of December 2013: $19

Using the Dividend Discount Model, the stock's intrinsic value in 2006 is closest to:

(All years are end of years)

a) None of these answers is correct

b)$6.67

c)$4.36

d)$5.84