Reference no: EM132481976
Stock Valuation and Weighted Average Cost of Capital (WACC)
Market price
Question 1: A firm has SAR 5,000 preferred stock that pays a dividend of 5%. What is the market price for the stock if the required rate of return is 7%?
Question 2: PQR Corporation preferred stock is selling for SAR 2,000 per share and pays an annual dividend of SAR 160 per share. If the investor requires a return of 7%, what is the appropriate market value for the shares?
Stock value
Question 3: Dinosaur Corporation's common stock paid a dividend of SAR 360 last year and is expected to grow indefinitely at a rate of 7%. If you can achieve a 10% return on equity, what is the value of the stock?
Growth rate
Question 4: If a firm's return on equity is 17% and management plans to retain 40% of earnings for investment purposes, what will be the firm's growth rate?
Rate of return
Question 5: STU Corporation paid a dividend of SAR 400 last year and the shares are selling for SAR 10,000 per share. The dividend is expected to grow at 5% indefinitely. What is the stock's expected rate of return?
Return on preferred stock
Question 6: Rodeo Corporation is planning to sell new preferred stock paying an 8% dividend on an SAR 5,000 face value. Flotation costs will be 5% of the current market price of SAR 6,000 per share. What is the rate of return on the new preferred stock?
CAPM
Question 7: BB Corporation's stock has a beta of 1.2. The risk-free rate is 5% and the expected return on the market is 13%. What is the required rate of return on BB Corporation's stock using the Capital Asset Pricing Model (CAPM)?
WACC
Alexander Corporation's balance sheet shows $400 million in debt, $80 million in preferred stock, and $520 million in total common equity.
The firm's tax rate is: 40%
Rate on Debt (Rd) 5%
Rate on Preferred Stock (Rps) 6%
Rate on Common Stock (Rcs) 10%
Question 8: If Alexander has a target capital structure of 40% debt, 10% preferred stock, and 50% common stock, what is its Weighed Average Cost of Capital (WACC)?