Question 6

Expected cash dividends are $3.00, the dividend yield is 4%, flotation costs are 4% of price, and the growth rate is 6%. Compute the approximate cost of new common stock.

Question 6 options:

1)

7.00%

2)

7.2%

3)

6.9%

4)

10.2%

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Question 7

Using the constant growth model, a firm's expected (D1) dividend yield is 2% of the stock price, and its growth rate is 5%. If the tax rate is .35%, what is the firm's cost of equity?

Question 7 options:

1)

10%

2)

7.0%

3)

9.0%

4)	More information is required to answer the question.

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Question 8

Debreu Beverages has an optimal capital structure that is 75% common equity, 15% debt, and 10% preferred stock. Debreu's pretax cost of equity is 9%. Its pretax cost of preferred equity is 7%, and its pretax cost of debt is also 5%. If the corporate tax rate is 35%, what is the weighed average cost of capital?

Question 8 options:

1)	Between 7% and 8%

2)	Between 8% and 9%

3)	Between 9% and 10%

4)	Between 10% and 12%

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Question 9

Oak Enterprises has a beta of 1.3, the market return is 8%, and the T-bill rate is 3%. What is their expected required return of common equity?

Question 9 options:

1)	Between 10% and 11%

2)	Between 8% and 9%

3)	Between 7% and 8%

4)	Between 9% and 10%

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Question 10

A firm's stock is selling for $65. The dividend yield is 6%. A 5% growth rate is expected for the common stock. The firm's tax rate is 40%. What is the firm's cost of retained earnings?

Question 10 options:

1)

11.00%

2)

13.00%

3)

12.35%

4)	The retained earnings cannot be determined from this information.