Reference no: EM132667711

In the previous 5 years, Google paid an annual dividend as follows:

Year          Dividends
2011            2.7
2010           2.5
2009            2.2
2008           1.8
2007        1.5

Problem 1- Google is expected to pay a dividends of $3 in the next year (2012). What is the cost of equity of Google if its current stock price is $90?

Problem 2- As a technology-based firm, Google has a high beta of 1.4. if the risk-free rate of return is 5% and the market risk premium is 3%, calculate the cost of equity of Google using the capital asset pricing model (CAPM)?

Problem 3- As a financial analyst, you know that both DGM and the CAPM used in # 1 and # 2 above can be inaccurate, so you decided to calculate the average cost of equity of google. What is the average cost of equity of Google?

Problem 4- Google has a preferred stock that pays an annual dividend of 6$ to shareholders. What is the cost of Google's preferred stocks if it is currently priced at $100?

Problem 5- Google has one bond outstanding that matures in 20 years. This bond has a coupon rate of 8%, paid semiannually. The bond currently sells for $1,124. What is the pre-tax cost of debt of Google?

Problem 6- Google currently has a 5 million common shares outstanding, and a 1 million preferred shares outstanding, and 100,000 bonds outstanding. Use your answers in #3, #4, and #5 to calculate Google Weighted Average Cost of Capital (WACC) if the corporate tax rate is 35%.