American Eagle has a $400,000 bond issue outstanding that is selling at 98 percent of face value. The firm also has 2,700 shares of preferred stock valued at $60 a share and 37,750 shares of common stock valued at $15 a share. What weight should be assigned to the common stock when computing the weighted average cost of capital?

1. 55.75 percent
2. 62.20 percent
3. 50.55 percent
4. 61.03 percent
5. 57.40 percent

Microsoft has paid annual dividends of $1.30, $1.35, $1.40, $1.45, and $1.50 over the past five years, respectively. What is the average dividend growth rate?

1. 1.85 percent
2. 2.16 percent
3. 3.64 percent
4. 2.47 percent
5. 2.39 percent

Erikson Co. just paid its annual dividend of $.7 a share. The stock has a market price of $18 and a beta of .95. The return on the U.S. Treasury bill is 4 percent and the market risk premium is 8 percent. What is the cost of equity?

1. 9.98 percent
2. 10.17 percent
3. 11.60 percent
4. 10.45 percent
5. 12.05 percent