1. The common stock of the Cap & Gown Company is selling for $40.00 per share. The company pays a constant annual dividend and has a dividend yield of 8 percent. What is the amount the dividend?
2. The Flower & Gift Co. pays a constant annual dividend (g=0) of $2.13 a share and currently sells for $14.20 a share. What is the rate of return on the stock?
3. The common stock of Ridgeway Properties will pay an annual dividend of $2.70 one year from now. The company increases the dividends by 4 percent annually. Your required return on this stock is 13 percent. Assume that you purchase the stock today and sell it five years from now. What will be the price of the stock be at that time?
4. SRS, Inc. just paid an annual dividend of $1.20 last month. The required return is 15 percent and the growth rate is 3 percent. What is the current value of this stock?
5. The Johnston Company will pay an annual dividend of $2.05 next year. The company has increased its dividend by 3.5 percent a year for the past twenty years and expects to continue doing so. What will a share of this stock be worth at the end of the year after the next dividend of $2.05 if investors require a 14 percent rate of return?
6. Deltronics just paid its first annual dividend of $0.20 a share. The firm plans to increase the dividend by 4.0 percent per year indefinitely. What is the firm's cost of equity if the current stock price is $11 a share?
7. Cobblestone Tours has 10,000 bonds, each with a face value of $1,000, that trade in the market at a yield-to-maturity of 9.0 percent. The bonds mature in 9 years and carry a 10 percent annual coupon. What is each one of Cobblestone Tour's bonds worth today?
8. Bertha's Boutique has 2,000 bonds outstanding with a face value of $1,000 each, a coupon rate of 9.0 percent and a yield-to-maturity of 7.0 percent. The interest is paid annually. What is Bertha's after-tax cost of debt?
9. Your firm has $1,000 face value bonds outstanding. These bonds have a 7.0 percent coupon, pay interest semi-annually, and have a current market price equal to $1,030.00. What is the dollar amount of the annual interest tax shield for each bond if the company pays 35 percent of its taxable income to the IRS?
10. Rosita's has a cost of equity of 13.8 percent and a pre-tax cost of debt of 8.50 percent. The company likes to raise new funds using 65 percent debt and 35 percent equity. If the applicable tax rate is 0.32 percent, what is Rosita's weighted average cost of capital?
11. The Cherished Cat's cost of equity is 13 percent and its after-tax cost of debt is 4.20 percent. What is the firm's weighted average cost of capital if its debt-equity ratio is 0.80 and the tax rate is 30 percent?
12. Bowtie, Inc. has a cost of equity of 15.7 percent, a pre-tax cost of debt of 6.70 percent, and a tax rate of 34 percent. What is the firm's weighted average cost of capital if the debt-equity ratio is 1.50?
13. Deep Sea Fishing issues only common stock and coupon bonds. The firm has a debt-equity ratio equal to 0.60. The cost of equity is 13.7 percent and the pre-tax cost of debt is 9.4 percent. The tax rate is 35 percent. What is the weighted average cost of the firm's capital?
14. The preferred stock of New Beverages is selling for $39 a share. The dividend rate is 8.0 percent annually and the par value per share is $100. What is the firm's cost of preferred stock if the tax rate is 35 percent?
15. 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?