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1. Assume that Burger Queen Inc. hired you as a consultant to help estimate its cost of capital. You have obtained the following data: D0 = $0.80; P0 = $26.00; and g = 6.00% (constant). Based on the DCF approach, what is the cost of equity from retained earnings?
9.26%
9.14%
8.87%
8.54%
8.48%
2. Perfect Confectionery Co. expects to earn $3.20 per share during the current year, its expected dividend payout ratio (i.e., the proportion of earnings paid out as dividend) is 60%, its expected constant dividend growth rate is 5.0%, and its common stock currently sells for $30.00 per share. New stock can be sold to the public at the current price, but a flotation cost of 10% would be incurred. What would be the cost of equity from new common stock?
a) 10.73%
b) 11.29%
c) 11.82%
d) 12.11%
e) 12.67%
The disposable income from your part-time job in 2012 and 2013 is $16,500. In 2012, you borrowed $900 at 18 percent interest. You repay your loan with interest in 2013. What is the effective annual rate of interest?
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Use Appendix A for an approximate answer but calculate your final answer using the formula and financial calculator methods.
Consider a single period binomial setting where the riskless interest rate is zero, and there are no taxes. What is the share price of the firm?
B24&Co stock has a beta of 1.50, the current risk-free rate is 3.00 percent, and the expected return on the market is 10.50 percent. What is B24&Co's cost of equity?
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