44.

Teall Development Company hired you as a consultant to help them estimate its cost of capital. You have been provided with the following data: D₁ = $1.45; P₀ = $28.00; and g = 6.50% (constant). Based on the DCF approach, what is the cost of equity from retained earnings?

a. 8.88%

b. 14.60%

c. 11.21%

d. 14.25%

e. 11.68%

A. Butcher Timber Company hired your consulting firm to help them estimate the cost of equity. The yield on the firm's bonds is 5.00%, and your firm's economists believe that the cost of equity can be estimated using a risk premium of 3.85% over a firm's own cost of debt. What is an estimate of the firm's cost of equity from retained earnings?

a. 8.85%

b. 10.00%

c. 6.81%

d. 9.74%

e. 8.76%

Trahan Lumber Company hired you to help estimate its cost of capital. You obtained the following data: D₁ = $1.25; P₀ = $37.50; g = 5.00% (constant); and F = 6.00%. What is the cost of equity raised by selling new common stock?

a. 7.18%

b. 8.89%

c. 8.55%

d. 9.57%

e. 9.23%

You were hired as a consultant to Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of retained earnings is 10.50%, and the tax rate is 40%. The firm will not be issuing any new stock. What is Quigley's WACC?

a. 6.35%

b. 7.74%

c. 5.81%

d. 6.66%

e. 8.20%