Question: Question 8 Using a dividend growth model, what is the cost of equity for the following stock assuming that the stock market is in equilibrium:

Question 8

Using a dividend growth model, what is the cost of equity for the following stock assuming that the stock market is in equilibrium: the stock price is $40.05, the expected dividend for t = 1 is $3.60 per share and the expected constant long-run growth rate is 6.10%.

15.09%

13.45%

17.58%

12.70%

Question 9

Based on the following information, what is the Weighted Average Cost of Capital (WACC) for this firm? Assume that the marginal tax rate is 32%.

	Weight	Component cost (pre-tax for debt)
Long-term debt	29%	12.6%
Short-term debt	4%	8.0%
Preferred stock	7%	15.4%
Common stock	60%	19.6%

15.54%

17.88%

18.50%

19.44%

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