vv-21 - Ch 9 In Class Drill Problems WACC 0 The preferred...

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