Question: 1. Using the constant growth model, a firm's expected (D1) dividend yield is 4% of the stock price, and its growth rate is 7.5%. If

1. Using the constant growth model, a firm's expected (D1) dividend yield is 4% of the stock price, and its growth rate is 7.5%. If the tax rate is 35%, what is the firm's cost of equity?

A. 6.65%

B. 8.95%

C. 11.50%

D. More information is required.

Which of the following techniques are used for evaluating mutually exclusive projects having unequal lives?

A. Equivalent annual annuities

B. Replacement chains

C. Profitability Index

D. Both A and B

2. A ten-year bond, with par value equals $1000, pays 12% annually. If similar bonds are currently yielding 6% annually, what is the market value of the bond? Use semi-annual analysis.

A. $1,000.00

B. $1549.85

C. $987.50

D. $1446.32

3. Which of the following is not true about preferred stock?

A. A significantly large proportion of the dividends are nontaxable to other corporations which hold preferred stock.

B. Dividends are legal obligations of the firm.

C. Preferred stocks are often cumulative in respect to dividends.

D. The after-tax cost is higher than debt with the same yield.

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