1. Concord Company earned $25 million for the fiscal year ending yesterday. The firm also paid out 50 percent of its earnings as dividends yesterday. The firm will continue to pay out 50 percent of its earnings as annual, end-of-year dividends. The remaining 50 percent of earnings is retained by the company for use in projects. The company has 2 million shares of common stock outstanding. The current stock price is $60. The historical return on equity (ROE) of 14 percent is expected to continue in the future. What is the required rate of return on the stock? (Hint: use the retention ratio and ROE to estimate the growth rate)

a. 19.16%

b. 18.15%

c. 17.64%

d. 18.77%

e. 17.95%

2. Given the following information for Merrimack Entertainment, find the WACC. Assume the company s tax rate is 35 percent. Debt: 15,000 bonds outstanding, 6.0 percent coupon, $1,000 par value, 20 years to maturity, selling for 98 percent of par; the bonds make semiannual coupon payments. Common stock: 200,000 shares outstanding, selling for $50 per share; the beta is 1.40. Market: 7 percent market risk premium and 3.0 percent risk-free rate.

a. 8.49%

b. 8.25%

c. 8.03%

d. 7.75%

e. 7.57%