7295933 & A.3-FINAN X Bing -xythos.s3.ap-southeast-1.amazonaws.com/5ddfa3943a653/7295933?response-cache-control-private%2C%2 wnloads MSN.com Google Translate G Google Google Youtube to mp3 C... Ask.com MG FIN 2102/Page 2 of 4 (c) Question 2 (a) The preferred stock of Denver Savings and Loan pays an annual dividend of $5.60. It has a required rate of return of 8 percent. Compute the price of the preferred stock. (5 marks) (b) A firm pays a $1.50 dividend at the end of year one, has a stock price of $60, and a constant growth rate of 8 percent. Compute the required rate of return of the stock. (5 marks) Zinger Corporation manufactures industrial type sewing machines. Zinger Corp. received a very large order from a few European countries. In order to be able to supply these countries with its products, Zinger will have to expand its facilities. Of the required expansion, Zinger feels it can raise $75 million internally, through retained earnings. The firm's optimum capital structure has been 35% debt, 10% preferred stock and 55% equity. The company will try to maintain this capital structure in financing this expansion plan. Currently Zinger's common stock is raded at a price of $28 per share. Last year's dividend was $1.50 per share. The growth rate is 8%. The company's preferred stock is selling at $45 and has been yielding 6% in the current market. Flotation costs have been estimated at 8% of common stock and 3% of preferred stock. Zinger Corp. has bonds outstanding at 6%, but its investment banker has informed the company that interest rates for bonds of equal risk are currently yielding 5%. Zinger's tax rate is 40%. Calculate the cost of debt after tax, cost of preferred stock, cost of internal common stock and weighted average cost of capital of Zinger Corporation. (10 marks) (d) Using the CAPM (capital asset pricing model), what is the required rate of return for an investment with a Beta of 18, a risk free rate of return of 4%, and a market rate of return of 10% (5 marks) (Total: 25 marks) Question 3 (a) Assume a $60,000 investment and the following cash flows for two alternatives: Imivestment MacBook Air 7295933 & A.3-FINAN X Bing -xythos.s3.ap-southeast-1.amazonaws.com/5ddfa3943a653/7295933?response-cache-control-private%2C%2 wnloads MSN.com Google Translate G Google Google Youtube to mp3 C... Ask.com MG FIN 2102/Page 2 of 4 (c) Question 2 (a) The preferred stock of Denver Savings and Loan pays an annual dividend of $5.60. It has a required rate of return of 8 percent. Compute the price of the preferred stock. (5 marks) (b) A firm pays a $1.50 dividend at the end of year one, has a stock price of $60, and a constant growth rate of 8 percent. Compute the required rate of return of the stock. (5 marks) Zinger Corporation manufactures industrial type sewing machines. Zinger Corp. received a very large order from a few European countries. In order to be able to supply these countries with its products, Zinger will have to expand its facilities. Of the required expansion, Zinger feels it can raise $75 million internally, through retained earnings. The firm's optimum capital structure has been 35% debt, 10% preferred stock and 55% equity. The company will try to maintain this capital structure in financing this expansion plan. Currently Zinger's common stock is raded at a price of $28 per share. Last year's dividend was $1.50 per share. The growth rate is 8%. The company's preferred stock is selling at $45 and has been yielding 6% in the current market. Flotation costs have been estimated at 8% of common stock and 3% of preferred stock. Zinger Corp. has bonds outstanding at 6%, but its investment banker has informed the company that interest rates for bonds of equal risk are currently yielding 5%. Zinger's tax rate is 40%. Calculate the cost of debt after tax, cost of preferred stock, cost of internal common stock and weighted average cost of capital of Zinger Corporation. (10 marks) (d) Using the CAPM (capital asset pricing model), what is the required rate of return for an investment with a Beta of 18, a risk free rate of return of 4%, and a market rate of return of 10% (5 marks) (Total: 25 marks) Question 3 (a) Assume a $60,000 investment and the following cash flows for two alternatives: Imivestment MacBook Air