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1. Pan American? Airlines' shares are currently trading at? $69.25 each. The yield on Pan? Am's debt is? 4% and the? firm's beta is 0.7. The Tminus−Bill rate is? 4% and the expected return on the market? (E ?(kM?)) is? 9%. The? company's target capital structure is? 25% debt and? 75% equity. Pan American Airlines pays a combined federal and state tax rate of? 35%. What is Pan? Am's cost of? equity?
A. ?7.5%
B. ?8.0%
C. ?8.5%
D. ?7.0%
E. ?9.0%
2. Neeson Co. paid dividends in the last three years of $3.00, $3.15, and $3.31, respectively. The current stock price of Neeson is $30.00. Assuming the next dividend will grow at the same rate as the last three years, what is Neeson's cost of equity?
A. ?16.62%
B. ?16.03%
C. ?10.00%
D.? 11.59%
E.? 12.52%
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