1)Gray Manufacturing is expected to pay a dividend of $1.25 per share at the end of the year (D, = $1.25). The stock sells for $39.50 per share, and its required rate of return is 10.5%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate?

2)Mikkelson Corporation's stock had a required return of 13.75% last year, when the risk-free rate was 3% and the market risk premium was 4.75%. Then an increase in investor risk aversion caused the market risk premium to rise by 2%. The risk-free rate and the firm's beta remain unchanged. What is the company's new required rate of return? (Hint: First calculate the beta, then find the required return.) Do not round your intermediate calculations.

3)The after-tax cost of debt, which is lower than the before-tax cost, is used as the component cost of debt for purposes of developing the firm's WACC. TRUE or FALSE

4)Assume that the risk-free rate remains constant, but the market risk premium declines. Which of the following is most likely to occur? O The return on "the market" will increase. O The required return on a stock with beta > 1.0 will decrease. O The return on "the market" will remain constant. O The required return on a stock with beta = 1.0 will not change. O The required return on a stock with a positive beta < 1.0 will increase.

5)If Dy = $1.5, Po = $70, the stock's cost of equity is 12%, what is the constant dividend growth?