10. Faye Harlan, CFA, is estimating the cost of common equity for Cyrene Corporation. She prepares the following data for Cyrene: Price per share = $50; Expected dividend per share = $3; Expected retention ratio (RR)= 30%; Expected return on equity = 20%; Beta = 0.89; Yield to maturity on outstanding debt = 10%; The expected market rate of return is 12% and the risk-free rate is 3%. Based on these data, Harlan determines that Cyrenes cost of common equity is 14%. Harlan most likely arrived at this estimate by using the (Hint: g = ROERR): *

A. Dividend discounted model approach.

B. Capital asset pricing model approach.

C. Bond yield plus risk premium approach.

D. Dividend yield plus growth rate approach.

E. The average of the result obtained by A&B.

11. An analyst gathered the following data about a stock: The stock paid a $1 dividend last year; Next years dividend is projected to be 10% higher; The stock is projected to sell for $25 at the end of the year; The risk-free rate of interest is 8%; The expected return on the market is 13%; The stocks beta is 1.2. The value of the stock today is closest to: *

A. $19.45

B. $22.89

C. $26.74

D. $30.20

E. $18.00

12. A firm has a constant growth rate of 7% and just paid a dividend of $6.25. if the required rate of return is 12%, what will the stock sell for two years from now based on the dividend discount model? *

A. $133.75

B. $149.80

C. $153.13

D. $160.14

E. None of the above

13. Assume the Wansch Corporation is expected to pay a dividend of $2.25 per share this year. Sales and profit for Wansch are forecasted to grow at a rate of 20% for two years after that, then grow at 5%per year forever. Dividend and sales growth are expected to be equal. Wanschs shareholders require a 15% return, the per-share value of Wanschs common stock based on the dividend discount model is: *

A. $22.75

B. $26.00

C. $28.50

D. $30.40

E. None of the above