Reference no: EM132679324

Problem 1: A preference share pays a constant dividend of $1.47 and is currently priced at $25.26. The corporate tax rate is 30%. What is the before-tax cost of preference shares?

Select one:

a. 0.0507

b. 0.0407

c. 0.0285

d. 0.0582

Problem 2: A share has a beta of 1.2. The risk-free rate of return is 2.0% and the expected return on the market is 11.9%. What is the expected return on the share?

Select one:

a. 13.88%

b. 18.26%

c. 13.90%

d. 16.28%

Problem 3: A firm has three components in its capital structure: debt, preference shares and ordinary shares. The before-tax cost of debt is 4.0%, the before-tax cost of preference shares is 7.2% and the before-tax cost of ordinary shares is 12.8%. The proportion of debt in the capital structure is 15%, the proportion of preference shares is 21% and the proportion of ordinary shares is 64%. The corporate tax rate is 30%.

What is the firm's Weighted Average Cost of Capital?

Select one:

a. 7.21%

b. 9.67%

c. 10.30%

d. 10.12%