1) ABC company's market value of common stock is $200 million, preferred stock is $300 million, and debt is $500 million. Suppose that the cost of equity is 7%, the before-tax cost of debt is 4.7%, cost of preferred stock is 5.6%, and the tax rate is 37%.
Compute the WACC.
2) You have observed the following returns on ABC's stocks over the last six years:
19.2%, 3.2%, 13.6%, -4.6%, 14.2%, -2.9%
What is the geometric average returns on the stock over this six-year period.
3) The common stock of ABC Industries is valued at $71.6 a share. The company increases their dividend by 5.9 percent annually and expects their next dividend to be $2.65. What is the required rate of return on this stock?
4) ABC Company's last dividend was $1.2. The dividend growth rate is expected to be constant at 8% for 3 years, after which dividends are expected to grow at a rate of 3% forever. The firm's required return (rs) is 10%. What is its current stock price (i.e. solve for Po)?
5) Suppose the exchange rate is $1.2126 per euro. If the euro appreciates by 29% against the dollar, how many euros would a dollar buy tomorrow?
6) The ABC Company has a cost of equity of 13.9 percent, a pre-tax cost of debt of 5.9 percent, and a tax rate of 33 percent. What is the firm's weighted average cost of capital if the weight of debt is 38 percent?
8) You want to create a portfolio as risky as the market. Suppose you invest your money in Stocks A, B, C, and the risk-free asset. What is the weight of Stock C in your portfolio?
Stock Weights(%) Beta
A 13 1.4
B 22 0.5
C ? 1.1
Rf ? ?
9) The ABC Co. has $1,000 face value stock outstanding with a market price of $873.6. The stock pays interest annually, matures in 15 years, and has a yield to maturity of 9.9 percent. What is the annual coupon amount?
10) Below is the stock split data for ABC Company:
Stock
splits
31-Dec-90
31-Dec-91 4 for 1
31-Dec-92
31-Dec-93 6 for 3
31-Dec-94
31-Dec-95
31-Dec-96 1.5 for 1
31-Dec-97
31-Dec-98 2 for 1
31-Dec-99
If you bought 1,345 shares in the beginning of 1990 and during the period of 10 years never bought or sold additional shares, how many shares would you have by the end of 1999?
Enter your answer rounded off to two decimal points.
12) The spot rate for the pound is £0.6406 = $1 and the spot rate for the Canadian dollar is C$1.2888 = $1. What is the £/C$ cross rate?
Enter your answer rounded off to FOUR decimal points. Do not enter any currency sign in the answer box.
13)
Suppose the nominal rate is 16.7% and the inflation rate is 6.3%. Solve for the real rate. ??Use the Fisher Equation to get your anser.
15) A stock just paid a dividend of D0 = $3.1. The required rate of return is rs = 21.9%, and the constant growth rate is g = 4.3%. What is the current stock price?
17) One year ago, you puchased 94 shares of ABC stock for $21.1 per share. During the year, you received a dividend of $4.9 per share. Today, you sold all your shares for $29.4. What are the percentage return on your investment?
19) The risk-free rate is 5.3%, the market risk premium is 11.8%, and the stock's beta is 0.3. What is the cost of common stock?
20) Suppose that today's stock price is $42.4. If the required rate on equity is 12.8% and the growth rate is 8.9%, compute the expected dividend (i.e. compute D1)