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[Note: 24 June is the last day of classes for the session] PROBLEM 1: The Blue Dog Company has common stock outstanding that has a
[Note: 24" June is the last day of classes for the session] PROBLEM 1: The Blue Dog Company has common stock outstanding that has a current price of $19.88 per share and a $1.50 current dividend (DO) per share. Blue Dog's dividends are expected to grow at a constant rate of 6% per year, forever. The expected risk-free rate of interest is 2.5%, whereas the expected market rate of return is 12.5%. The beta on Blue Dog's stock is 1.15. a. What is the cost of equity for Blue Dog using the dividend valuation model? b. What is the cost of equity for Blue Dog using the capital asset pricing model?(CAPM) c. the preferred stock dividends are $5 and the price of the preferred stock is $50. There are #40,000 stocks are outstanding. What is the cost of Preferred stock. d. Number of shares of common stock outstanding: #500,000 e. The firm's outstanding bonds have ten years to maturity, a total face value of debt is $5 million, face value per bond of $1,000, current price is $985 with a coupon rate of 10%. Interest is paid annually. What is the yield to maturity on the bond? f. the tax rate is 24% Using data given above; calculate the WACC for the firm. [Hint: Use market value proportions to calculate WACC]
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