6. Find the after-tax cost of common stock for the following firm. Use the CAPM method.

5 years ago, Niko Corporation issued bonds that originally had a maturity of 20 years. These bonds were $1,000 par value bonds that were issued with a 7% coupon rate. These bonds are currently selling for $1,100.

Niko Corporation also has issued common stock in the past and has an estimated beta of 0.7. The stock has historically averaged a return of 12% and is expected to have a return of 10% this year. The stock just paid a dividend of $5 and is currently selling for $80. The firm expects common dividends to grow by 5% constantly forever.

The firm additionally has preferred stock outstanding that was issued with a stated dividend of $5. Currently, the preferred stock is trading for $90.

Niko Corporation commonly pays a tax rate of 20%. The firm is expecting to finance with 40% debt, 50% common equity, and the remainder as preferred stock.

This year, the market risk premium is estimated to be 14% while Treasury bonds are average 4%.

8. You just invested $100 total in two separate stocks, Ford and Target. You bought 10 shares of Ford at its current market price of $7 and 3 shares of Target at its current market price of $10. If you expect Ford to have a return of -5% and Target to have a return of 16%, what is the expected return of the portfolio?

10. Find the after-tax cost of common stock for the following firm using DCF.

5 years ago, Niko Corporation issued bonds that originally had a maturity of 20 years. These bonds were $1,000 par value bonds that were issued with a 7% coupon rate. These bonds are currently selling for $1,100.

Niko Corporation also has issued common stock in the past and has an estimated beta of 1.3. The stock has historically averaged a return of 12% and is expected to have a return of 10% this year. The stock just paid a dividend of $5 and is currently selling for $70. The firm expects common dividends to grow by 4% constantly forever.

The firm additionally has preferred stock outstanding that was issued with a stated dividend of $3. Currently, the preferred stock is trading for $70.

Niko Corporation commonly pays a tax rate of 20%. The firm is expecting to finance with 40% debt, 50% common equity, and the remainder as preferred stock.

This year, the S&P 500 is producing an average return of 12% while Treasury bonds are average 2%.