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If a firm is all-equity financed, its WACC will equal: R F . R F. R S. R M. R S . Tanner s Leather

If a firm is all-equity financed, its WACC will equal:

RF.

RF.

RS.

RM.

RS.

Tanner s Leather is an all-equity financed firm. The beta is 1.16, the market risk premium is 7.52 percent, the market rate of return is 10.64 percent, and the tax rate is 34 percent. The firm announced that the next dividend will be $.6864 per share and future dividends will increase by 4 percent annually. The stock sells for $13 a share. What is the average cost of equity?

10.56%

10.21%

9.98%

10.63%

9.74%

The Bird Carver has a target WACC capital of 9 percent. The firm has an aftertax cost of debt of 6 percent and a cost of equity of 13 percent. What debt-to-equity ratio is needed for the firm to achieve its target WACC?

.67

.75

.93

1.08

1.33

Which one of these will produce an acceptable estimate of the value of the market risk premium?

Rate computed using the CAPM and a beta of 1

Total dividends paid by the S&P 500 firms for a 1-year period divided by the U.S. Treasury bill rate

Average rate of return on the S&P 500 plus the risk-free rate

Historical rate of return on a market index

Dividend yield of the S&P 500 + Consensus forecast of future dividend growth - U.S. Treasury bill rate

The beta of a security provides an estimate of the:

the market risk premium.

characteristic line for the security.

slope of the capital market line.

total risk of the individual security.

slope of the security market line.

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