ABC is a digital camera manufacturer. It has just paid a dividend of $0.77 per share. The number of outstanding shares is 700,000 and the market price of the stock is $9.2. The company is expected to increase dividend by 6.46% per year indefinitely. The company also has 8,000 zero coupon bonds outstanding (par value = $1,000) with 7 years to maturity currently selling at $469.2. The risk-free rate is 2.4% and the market risk premium is 6.9%. The beta of ABC's common stock is 1.2. The corporate tax rate is 35%. What is the weighted average cost of capital (WACC) of ABC using a conservative estimate of cost of equity?

Deltona, USA is a development company that currently is financed with 100 percent equity. There are 15,000 shares outstanding at a market price of $50 a share. Deltona has earnings before interest and taxes (EBIT) of $20,000. The firm has decided to issue $250,000 of debt at a rate of 8 percent and use the proceeds to repurchase shares. Theresa owns 500 shares of Deltona and wants to use homemade leverage to offset the leverage used by Deltona. Theresa should

a.sell 133 shares and invest the proceeds into the debts of Deltona.

b.buy an additional 167 shares.

c.sell 167 shares and invest the proceeds into the debts of Delton

The TrunkLine Company debtholders are promised payments of $35 one year from today if the firm does well, but will receive only $20 if the firm does poorly. Bondholders are willing to pay $20for thebond. The chance for the firm to do well is 50%. The expected return to the bondholders is approximately:

a.2.9%

b.25.0%

c.37.5%

You own 1,500 shares of stock in Avon Corporation. You will receive a $0.80 per share dividend this year. In next year, Avon will pay a liquidating dividend of $35 per share. The required return on Avon stock is 16%. You only want $200 total in dividends this year and accomplish this by using homemade dividends. Suppose after doing homemade, you will not buy or sell Avon stock anymore. What will your total dividend amount be the next year?

a.$35,696

b.$40,764

c.$53,660

A firm has a market value equal to its book value. Currently, the firm has excess cash of $800 and other assets of $5,200. Equity is worth $6,000. The firm has 600 shares of stock outstanding and net income of $700. The firm has decided to spend all of its excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?

a.500 shares

b.510 shares

c.520 share