A firm has a preferred stock with SAR 100 par value that pays a dividend of 12%. What is the market price for the stock if the required rate of return is 7%?               

               

               

Problem 11-2: Common Stock Market Price     

A firm paid a dividend payment of SAR 650 last year and is expected to grow indefinitely at a rate of 7%. If you can achieve a 10% return on equity, what is the value of the stock?  

               

 

Problem 11-3- Preferred Stock Value     

A corporation preferred stock is selling for SAR 1750 per share and pays an annual dividend of SAR 152 per share. If the investor requires a return of 7%, what is the appropriate market value for the shares?         

                              

               

Problem 11-4: Growth Rate        

If a firm's return on equity is 20% and management plans to retain 75% of earnings for investment purposes, what will be the firm's growth rate?    

               

               

Problem 11-5: Dividend Constant Model-Stock Expected Rate of Return    

A corporation paid a dividend of SAR 625 last year and the shares are selling for SAR 6250 per share. The dividend is expected to grow at 7% indefinitely. What is the stock's expected rate of return? 

               

                              

Problem 11-6: Required Rate of Return (CAPM) 

A corporation's stock has a beta of 1.2. The risk-free rate is 8.5% and the expected return on the market is 11.5%. What is the required rate of return on the stock using the Capital Asset Pricing Model (CAPM)? 

               

               

               

Problem 11-7: Cost of Debt         

A firm's bond with a SAR 1000 par value currently selling at SAR825. The coupon rate is 10% with 12.5 years to the maturity date and the corporate tax is 25%. What is the cost of debt after tax? 

               

               
 

 

Problem 11-8: WACC Calculation             

A corporation's balance sheet shows SAR 400 million in debt, SAR 50 million in preferred stock, and SAR 550 million in total common equity.     

 

 

DATA
The firm's tax rate is:	15.00%
Rate on Debt (Rd) Before Tax	7.00%
Rate on Preferred Stock (Rps)	6.00%
Rate on Common Stock (Rcs)	11.00%
What is its Weighted Average Cost of Capital (WACC)?
Weight-Common Stock	550
Weight-debt	400
Weight-Preferred Stock	50