Objective type question based on cost of capital

Reference no: EM1315659

Objective type question based on cost of capital

1)Your company's stock sells for $50 per share, its last dividend (D₀)was $2.00, its growth rate is a constant 5 percent, and the companywill incur a flotation cost of 15 percent if it sells new commonstock. What is the firm's cost of new equity, ke?

a. 9.20%

b. 9.94%

c. 10.50%

d. 11.75%

e. 12.30%

2) An analyst has collected the following information regarding Christopher Co.: The company's capital structure is 70 percent equity and 30 percent debt. The yield to maturity on the company\'s bonds is 9 percent. The company's year-end dividend is forecasted to be $0.80 a share. The company expects that its dividend will grow at a constant rate of9 percent a year. The company\'s stock price is $25. The company's tax rate is 40 percent. The company anticipates that it will need to raise new common stockthis year, and total flotation costs will equal 10 percent of theamount issued.Assume the company accounts for flotation costs by adjusting the costof capital. Given this information, calculate the company's WACC.

a. 10.41%

b. 12.56%

c. 10.78%

d. 13.55%

e. 9.29%

3) percent. Its yogurt division is riskier than average, its freshproduce division has average risk, and its institutional foodsdivision has below-average risk. Dandy adjusts for both divisional andproject risk by adding or subtracting 2 percentage points. Thus, themaximum adjustment is 4 percentage points. What is the risk-adjustedrequired rate of return for a low-risk project in the yogurt division?

a. 6%

b. 8%

c. 10%

d. 12%

e. 14%

Reference no: EM1315659

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