$(((($PLEASE USE EXCEL WITH FORMULA $))))$Problem $1[7$ points$]$:

As the assistant to the CFO of Johnstone Inc., you must estimate its cost of common equity. You have

been provided with the following data: $D_0=$$$0\mathrm{.}80$;$P_0=$$$22\mathrm{.}50$; and $g=8\mathrm{.}00\%($constant$).$ Based on

the DCF approach, what is the cost of common from retained earnings?

Problem $2[7$ points$]$:

You have been hired by the CFO of Lugones Industries to help estimate its cost of common equity. You

have obtained the following data: $(1)r_d=$ yield on the firm's bonds $=7\mathrm{.}00\%$ and the risk premium over

its own debt cost $=4\mathrm{.}00\%.(2)r_{RF}=5\mathrm{.}00\%,$ Market Risk Premium $=6\mathrm{.}00\%,$ and $=1\mathrm{.}25.(3)D_1=$$$1\mathrm{.}20,$

$P_0=$$$35\mathrm{.}00,$ and $g=8\mathrm{.}00\%($constant$).$ You were asked to estimate the cost of common equity based on

the three most commonly used methods and indicate the difference between the highest and lowest of

these estimates. What is that difference?

Problem $3[8$ points$]$:

Granby Foods' $($GF$)$ balance sheet shows a total of $$25$ million in long$-$term debt with a coupon rate of

$8\mathrm{.}50\%.$ The yield to maturity on this debt is $8\mathrm{.}00\%,$ and the debt has a total current market value of $$27$

million. The company has $10$ million stock shares, and the stock has a book value per share of $$5\mathrm{.}00.$

The current stock price is $$20\mathrm{.}00$ per share, and stockholders' required rate of return, rs$,$ is $12\mathrm{.}25\%.$ The

company recently decided that its target capital structure should have $35\%$ debt, with the balance being

common equity. The tax rate is $40\%.$ Calculate WACCs based on book, market, and target capital

structures.