7.

Trahan Lumber Company hired you to help estimate its cost of capital. You obtained the following data: D₁ = $0.90; P₀ = $27.50; g = 4.50% (constant); and F = 6.00%. What is the cost of equity raised by selling new common stock?

a. 7.77%

b. 7.98%

c. 7.83%

d. 7.59%

e. 8.14%

8.

O'Brien Inc. has the following data: r_RF = 5.00%; RP_M = 6.00%; and b = 0.70. What is the firm's cost of equity from retained earnings based on the CAPM?

a. 11.70%

b. 7.70%

c. 9.50%

d. 11.00%

e. 9.20%

9.

A share of common stock just paid a dividend of $1.00. If the expected long-run growth rate for this stock is 5.4%, and if investors' required rate of return is 14.2%, then what is the stock price?

a. $7.42

b. $12.98

c. $11.36

d. $11.98

e. $5.38