1. The expected dividend is $2.50 for a share of stock priced at $25. What is the cost of equity if thelong-term growth in dividends is projected to be 8%?

a. 10.0%

b. 8.0%

c. 25.0%

d. 18.0%

2. Consider one of the two equations that can be used to calculate a firms cost of equity: rE = Div1/P0 +g. If the expected growth rate of American Airlines (AAL) common-stock dividends increases and if theprice of AALs stock also increases, what happens to AALs cost of equity? It __________.

a. increases

b. decreases

c. remains unaffected

d. might go up or down, depending on the relative sizes of the two changes

3. Calculate degree of operating leverage (DOL) for Louisville Slugger, a firm in Kentucky that makesbaseball bats. Louisville Slugger produces 155,000 bats per year, at a selling price of $30/bat and a variablecost of $26/bat. Fixed costs are $420,000. Ignore depreciation expense and taxes.

a. 3.10

b. 1.10

c. 2.10

d. 2.67

e. 1.48

4. A project has fixed costs of $156K/year. The OCF at 12000 units is $195K. (a, 2.0 pts.) Ignoring any taxeffects, what is the DOL? (b, 3.0 pts.) If units sold rise from 12000 to 13800, what will be the new OCF?(c, 2.0 pts.) At this new output level of 13800 units, what is the new DOL?