Reference no: EM133077862

Questions -

Q1. Porsche stock sells for $50 per share, its first-year dividend will be $3.00, its growth rate is a constant 5 percent, and the company will incur a flotation cost of 15 percent if it sells new common stock. What is the firm's cost of new equity?

a. 9.20%

b. 9.94%

c. 12.05%

d. 11.75%

e. 12.40%

Q2. GM has a capital structure that consists of 60 percent equity and 40 percent debt. The company's long-term bonds have a before-tax yield to maturity of 8.4 percent. The company uses the DCF approach to determine the cost of equity. GM's common stock currently trades at $45 per share. The year-end dividend (D1) is expected to be $2.50 per share, and the dividend is expected to grow forever at a constant rate of 7 percent a year. The company estimates that it will have to issue new common stock to help fund this year's projects. The flotation cost on new common stock issued is 10 percent, and the company's tax rate is 40 percent. What is the company's weighted average cost of capital, WACC?

a. 10.73%

b. 10.30%

c. 11.31%

d. 9.92%

e. 9.89%

Q3. IBM has 7 percent preferred stock outstanding that sells for $60 a share. This stock was originally issued at $50 per share and has a stated value of $100 per share. What is the cost of preferred stock if the relevant combined tax rate is 25 percent?

-11.22 percent

-10.94 percent

-10.45 percent

-11.67 percent

-11.37 percent

Q4. BK has a zero coupon bond issue outstanding that matures in 15 years. The bonds are selling at 56 percent of par value. What is the company's after tax cost of debt if the combined tax rate is 30 percent? (Use semiannual compounding.)

-4.48 percent

-3.13 percent

-3.22 percent

-3.73 percent

-2.73 percent