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

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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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