Reference no: EM132955706

Q1: The cost of capital for a firm with a 60/40 debt/equity split, 4.5% cost of debt, 15% cost of equity, and a 35% tax rate would be

Q2: The risk free rate currently have a return of 2.5% and the market risk premium is 4.45%. If a firm has a beta of 1.42, what is its cost of equity?

Q3: How much should you pay for a share of stock that offers a constant growth rate of 10%, requires a 16% rate of return, and is expected to sell for $50.16 one year from now?

Q4: Lipscomb Corporation is estimating its WACC. Its target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sell for 1,000 USD. The firm could sell, at par, 100 USD preferred stock which pays a 12 percent annual dividend, but flotation costs of 5 percent would be incurred. Libscomb is a constant-growth firm which just paid a dividend of $2.00, sells for 27.00 USD per share, and has a growth rate of 8 percent. The firm's marginal tax rate is 40 percent.

Q5: What is the value of Company X stock if the dividend next year will be $3 and is expected to grow at a rate of 4% forever if your required return is 6.25%