6.The common stock of Anthony Steel has a beta of 1.20. The risk-free rate is 5 percent and the market risk premium (rM- rRF) is 6 percent. What is the company’s cost of common stock, rs?
a.7.0%b.7.2%c. 11.0%d. 12.2%e. 12.4%Cost of common stockAnswer: b
Diff: M
7.Martin Corporation's common stock is currently selling for $50 per share. The current dividend is $2.00 per share. If dividends are expected to grow at 6 percent per year, then what is the firm's cost of common stock?

Diff: M
8.A company has determined that its optimal capital structure consists of 40 percent debt and 60 percent equity. Given the following information, calculate the firm's weighted average cost of capital.rd= 6%Tax rate = 40%P0= $25Growth = 0%D0= $2.00
9.Johnson Industries finances its projects with 40 percent debt, 10 percent preferred stock, and 50 percent common stock.•The company can issue bonds at a yield to maturity of 8.4 percent.•The cost of preferred stock is 9 percent.•The company's common stock currently sells for $30 a share.•The company's dividend is currently $2.00 a share (D0 = $2.00), and is expected to grow at a constant rate of 6 percent per year.•Assume that the flotation cost on debt and preferred stock is zero, and no new stock will be issued.•The company’s tax rate is 30 percent.What is the company’s weighted average cost of capital (WACC)?
10.Dobson Dairies has a capital structure which consists of 60 percent long-term debt and 40 percent common stock. The company’s CFO has obtained the following information:1*The before-tax yield to maturity on the company’s bonds is 8 percent.2*The company’s common stock is expected to pay a $3.00dividend at year end (D1= $3.00),and the dividend is expected to grow at a constant rate of 7percent a year. The common stock currently sells for$60 a share.3*Assume the firm will be able to use retained earnings to fund the equity portion of its capital budget.4*The company’s tax rate is 40 percent.What is the company’s weighted average cost of capital (WACC)?
a. 12.00%

b.8.03%c.9.34%d.8.00%e.7.68%
Multiple part:(The following information applies to the next six problems.)Rollins Corporation is estimating its WACC. Its target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $1,000. The firm could sell, at par, $100 preferred stock which pays a 12 percent annual dividend, but flotation costs of 5 percent would be incurred. Rollins' beta is 1.2, the risk-free rate is 10 percent, and the market risk premium is 5 percent. Rollins is a constant-growth firm which just paid a dividend of $2.00, sells for $27.00 per share, and has a growth rate of 8 percent. The firm's policy is to use a risk premium of 4 percentage points when using the bond-yield-plus-risk-premium method to find rs. The firm's marginal tax rate is 40 percent.Cost of debt

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- Spring '09
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- Corporate Finance, Cost Of Capital, Weighted Average Cost Of Capital (WACC), Weighted average cost of capital