Ch 9 In Class Drill Problems - WACC
0.
The preferred stock of North Coast Shoreline pays an annual dividend of $1.70 and
sells for $20.24 a share. What is the rate of return on this security?
a.
5.95 percent
b.
7.08 percent
c.
8.40 percent
d.
11.90 percent
e.
none of the above
R = $1.70
÷
$20.24 = 8.40 percent
1.
Martin Industries just paid an annual dividend of $1.20 a share. The market price of
the stock is $26.60 and the growth rate is 4 percent. What is the firm’s cost of equity?
2.
Ben’s Ice Cream just paid their annual dividend of $.75 a share. The stock has a
market price of $32 and a beta of .90. The return on the U.S. Treasury bill is 4 percent
and the market has a 12 percent rate of return. What is the cost of equity?
R
e
= .04 + .90
×
(.12 – .04) = 11.20 percent
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- Winter '11
- JimBrau
- Finance
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