3.Last week, Lester’s Electronics paid an annual dividend

3.Last week, Lester’s Electronics paid an annual dividend of $2.10 on its common stock. The company has a longstanding policy of increasing its dividend by 3 percent annually. This policy is expected to continue. What is the firm’s cost of equity if the stock is currently selling for $44.60 a share?

a.7.66 percent

b.7.71 percent

c.7.79 percent

D. 7.85 percent e. 7.90 percent

4.Deltronics just paid its first annual dividend of $.20 a share. The firm plans to increase the dividend by 4 percent per year indefinitely. What is the firm’s cost of equity if the current stock price is $11 a share? a. 5.82 percent

B. 5.89 percent

c.6.33 percent

d.6.48 percent

e.6.54 percent 

5.The common stock of Pittsburgh Steel Products has a beta of 1.42 and a standard deviation of 21.6 percent. The market rate of return is 12.5 percent and the risk-free rate is 5 percent. What is the cost of equity for Pittsburgh Steel Products?

a. 15.65 percent

b.17.75 percent

c.18.45 percent

d.20.50 percent

e.22.75 percent

6.Ziegler’s Supply has a beta of 1.06, a variance of .0124, a dividend growth rate of 2.8 percent, a stock price of $27 a share, and an expected annual dividend of $1.10 per share next year. The market rate of return is 10.8 percent and the risk-free rate is 4.1 percent. What is the cost of equity for Ziegler’s Supply?

a.6.89 percent

b.7.87 percent

c.8.48percent

d. 9.04 percent

e.11.19 percent

7. Juno has 8 percent bonds outstanding that mature in 19 years. The bonds pay interest semiannually and have a face value of $1,000. Currently, the bonds are selling for $989 each. What is Juno’spre-tax cost of debt?

a. 8.09 percent

B. 8.11 percent

c.8.14 percent

d.8.18 percent

e.8.23 percent

8.Cobblestone Tours has 10,000 bonds that are currently quoted at 103.6. The bonds mature in 9 years and carry a 10 percent annual coupon. What is Cobblestone Tour’s aftertax cost of debt if the applicable tax rate is 34 percent?

A. 6.20 percent

b.6.27 percent

c.7.17 percent

d.9.28 percent

e.9.39 percent

9. The preferred stock of Nadine Fashions pays an annual dividend of $7.25 a share and sells for $54 a share. The tax rate is 35 percent. What is the firm’s cost of preferred stock?

a.8.73 percent

b.9.46 percent

c.12.78percent

D. 13.43 percent

e.14.47 percent

10.Wilson’s has a cost of equity of 12.4 percent. The market risk premium is 8.4 percent and the risk- free rate is 3.7 percent. The company is acquiring a competitor, which will increase the company’s beta to 1.4. What effect, if any, will the acquisition have on Wilson’s cost of equity capital?

a.no effect

b.decrease of 10.92 percent

c.decrease of 1.48 percent

D. increase of 3.06 percent

e. increase of 5.29 percent

11.The 6 percent preferred stock of Mercer Livestock is selling for $62 a share. What is the firm’s cost of preferred stock if the tax rate is 34 percent and the par value per share is $100?

a.5.88 percent

b.6.39 percent

3 | P a g e

c.7.04 percent

d.8.27percentE. 9.68 percent

12.The Burger Stop has 80,000 shares of common stock outstanding at a price of $28 a share. It also has 15,000 shares of preferred stock outstanding at a price of $63 a share. There are five hundred 8.5 percent bonds outstanding that are priced at par. The bonds mature in 14 years, pay interest semiannually, and have a face value of $1,000. What is the capital structure weight of the preferred stock?

a. 18.87 percent

b. 21.21 percent

C. 25.64 percent

d. 26.29 percent

e. 32.18 percent

13.J&J Movers has 40,000 shares of common stock outstanding at a price of $34 a share. It also has 4,000 shares of preferred stock outstanding at a price of $58 a share. The firm has 9 percent, 10- year bonds outstanding with a total face value of $500,000. The bonds are currently quoted at 96 and pay interest semiannually. What is the capital structure weight of the firm’s debt if the tax rate is 34 percent?

A. 23.17 percent

b.25.68 percent

c.25.94 percent

d.27.18 percent

e.28.46 percent

14.The component costs of capital are market-determined variables in the sense that they are based on investors’ required returns.

a.True

b.False

15.For capital budgeting and cost of capital purposes, the firm should assume that each dollar of capital is obtained in accordance with its target capital structure, which for many firms means partly as debt, partly as preferred stock, and partly common equity.

a.True

b.False

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