Reference no: EM132667501
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 $90?
Problem 1: As a technology-based firm, Google has a high beta of 1.4. if the risk-free rate of return is 5% and the market risk premium is 3%, calculate the cost of equity of Google using the capital asset pricing model (CAPM)?
Problem 2: As a financial analyst, you know that both DGM and the CAPM used in # 1 and # 2 above can be inaccurate, so you decided to calculate the average cost of equity of google. What is the average cost of equity of Google?
Problem 3: Google has a preferred stock that pays an annual dividend of 6$ to shareholders. What is the cost of Google's preferred stocks if it is currently priced at $100?
Problem 4: 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 5: 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%.
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