1.Entergy Corp (ETR), a utility firm, has been paying dividends for a long time. The firm paid $4.6 last year (D₀ = $4.6). It is expected that the firm will increase dividends at a constant growth rate of 5%. The stock is currently selling for $89. What is the cost of (common) equity?

2.Ebay Inc. (EBAY) has the following capital structure based on market value.

• Long-term debt $300 million
• Preferred stock 5 million shares at $5 per share
• Common stock 30 million shares at $8 per share

Costs of debt and equity are as follow:

• Before-tax cost of debt 10%
• Cost of preferred stock 7%
• Cost of equity 7%
• Tax rate 30%

What is the cost of capital for Ebay?

3.

Which of the following are likely relative costs of capital for a firm?

Firm	Cost of debt (RD)	Cost of preferred stock (Rps)	Cost of equity (RE)
A	10%	8%	6%
B	8%	8%	8%
C	4%	5%	8%
D	5%	8%	6%