1 If D1 = $1.40, g (which is constant) = 2.5%, and P0 = $60, what is the stocks expected capital gains yield for the coming year? A. 2.33% B. 2.00% C. 4.83% D. 2.50%

2.

LePage Co. expects to earn $2.20 per share during the current year, its expected payout ratio is 40%, its expected constant dividend growth rate is 6.0%, and its common stock currently sells for $35.00 per share. New stock can be sold to the public at the current price, but a flotation cost of 3.5% would be incurred. What would be the cost of equity from new common stock? A. 9.05% B. 8.61% C. 8.01% D. 8.51% 4

3

Malitz Inc. recently hired you as a consultant to estimate the companys WACC. You have obtained the following information. Malitzs noncallable bonds mature in 26 years, have an 11.00% annual coupon, a par value of $1,000, and a market price of $910.00. The companys tax rate is 50%. The risk-free rate is 3.50%, the market risk premium is 5.50%, and the stocks beta is 1.50. The target capital structure consists of 35% debt and the balance as common equity. Malitz uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. What is its WACC? 10.24% 11.29% 9.76% 11.89%

4

You were hired as a consultant to Kroncke Company, whose target capital structure is 50% debt, 11% preferred, and 39% common equity. The after-tax cost of debt is 5.00%, the cost of preferred is 6.50%, and the cost of retained earnings is 14.50%. The firm will not be issuing any new stock. What is its WACC? A. 9.30% B. 8.67% C. 8.15% D. 8.87%