Quiz Chapter 10 Answer Key - CHAPTER 10 THE COST OF CAPITAL...

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Multiple Choice: Problems Component cost of retained earnings: CAPM Answer: a EASY 1 . Heino Inc. hired you as a consultant to help them estimate their cost of capital. You have been provided with the following data: r RF = 5.0%; RP M = 5.0%; and b = 1.1. Based on the CAPM approach, what is the cost of equity from retained earnings? a. 10.50% b. 10.71% c. 10.88% d. 11.03% Component cost of retained earnings: DCF, D 1 Answer: d EASY 2 . Rhino Inc. hired you as a consultant to help them estimate their cost of capital. You have been provided with the following data: D 1 = \$1.30; P 0 = \$40.00; and g = 7% (constant). Based on the DCF approach, what is the cost of equity from retained earnings? a. 9.66% b. 9.84% c. 9.97% d. 10.25% WACC Answer: d EASY 3 . You were hired as a consultant to Keys Company, and you were provided with the following 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. What is the firm’s WACC? a. 7.55% b. 7.73% c. 7.94% d. 8.10% Component cost of retained earnings: DCF, D 0 Answer: b MEDIUM 4 . Assume that Mary Brown Inc. hired you as a consultant to help it estimate the cost of capital. You have been provided with the following data: D 0 = \$1.20; P 0 = \$40.00; and g = 7% (constant). Based on the DCF approach, what is Brown's cost of equity from retained earnings? Chapter 10: The Cost of Capital Page 1 CHAPTER 10 THE COST OF CAPITAL

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a. 10.06% b. 10.21% c. 10.37% d. 10.54% WACC Answer: a MEDIUM 5 . You were hired as a consultant to Locke Company, and you were provided
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This note was uploaded on 12/16/2009 for the course FIN 300 taught by Professor Olander during the Spring '08 term at ASU.

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Quiz Chapter 10 Answer Key - CHAPTER 10 THE COST OF CAPITAL...

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