1) Calculating Cost of Equity: The Mays Co. just issued a dividend of $2.60 per share on its common stock. The company is expected to maintain a constant 6 percent growth rate in its dividends indefinitely. If the stock sells for $60 a share, what is the companys cost of equity?

2) Calculating Cost of Equity: The City Street Corporations common stock has a beta of 1.2. If the riskfree rate is 4.5 percent and the expected return on the market is 13 percent, what is the companys cost of equity capital?

3) Calculating Cost of Equity: Stock in Country Road Industries has a beta of 1.25. The market risk premium is 7 percent, and Tbills are currently yielding 5 percent. Country Roads most recent dividend was $2.10 per share, and dividends are expected to grow at a 5 percent annual rate indefinitely. If the stock sells for $34 per share, what is your best estimate of the companys cost of equity?

4) Calculating Cost of Preferred Stock: Holdup Bank has an issue of preferred stock with a $5 stated dividend that just sold for $87 per share. What is the banks cost of preferred stock?

5) Calculating Cost of Debt: A company has a debt issue on the market, a zero coupon bond with seven years left to maturity; the book value of this issue is $50 million, and the bonds sell for 61 percent of par. What is the companys total book value of debt? The total market value? What is your best estimate of the after tax cost of debt now?

6) Calculating WACC: Mullineaux Corporation has a target capital structure of 50 percent common stock, 5 percent preferred stock, and 45 percent debt. Its cost of equity is 15 percent, the cost of preferred stock is 6 percent, and the cost of debt is 8 percent. The relevant tax rate is 35 percent.

a. What is Mullineauxs WACC? b. The company president has approached you about Mullineauxs capital structure. He wants to know why the company doesnt use more preferred stock financing because it costs less than debt. What would you tell the president?