problem 1: Suppose that you are a consultant to Thornton Inc., and you have been given with the data shown below: rRF = 5.5%; RPM = 6.0%; and b = 0.8. Determine the cost of equity from retained earnings based upon the CAPM approach?
a) 9.65%
b) 9.91%
c) 10.08%
d) 10.30%
e) 10.49%
problem 2: Suppose that you are a consultant to Morton Inc., and you have been given with the data: D1 = $1.00; P0 = $25.00; and g = 6% (constant). Find out the cost of equity from retained earnings based upon the DCF approach?
a) 9.79%
b) 9.86%
c) 10.00%
d) 10.20%
e) 10.33%
problem 3: You were hired as a consultant to Keys Company and you were given the data: Target capital structure: 40% debt, 10% preferred and 50% common equity. The after-tax cost of debt is 4.00%, the cost of preferred is 7.50% and the cost of retained earnings is 11.50%. The firm will not be issuing any new stock. Determine the firm's WACC?
a) 7.55%
b) 7.73%
c) 7.94%
d) 8.10%
e) 8.32%
problem 4: Wagner Lumber Company hired you to assist them estimate their cost of capital. You were given with the data: D1 = $1.25; P0 = $40; g = 6% (constant); and F = 5%. The firm should issue new stock; determine the cost of equity raised by selling new common stock?
a) 9.29%
b) 9.40%
c) 9.62%
d) 9.85%
e) 9.99%
problem 5: Hamilton Company consists of 20-year, 8% quarterly coupon bonds which presently sell for $686.86. The company's tax rate is 40%. Find out the firm's nominal component cost of debt?
a) 3.05%
b) 7.32%
c) 7.36%
d) 12.20%
e) 12.26%