Q1. You are a financial manager of a firm and are asked to assess the cost of capital of your firm. You know that Your firm just paid dividend $2 per share The current stock price is $20 per share Firm beta is 20% higher than market average Constant growth rate is 3% Expected market return is 11% and risk free rate is 1% There is totally 10 million of outstanding shares of stocks, and for each dollar equity, firm issued $1.5 debt Cost of borrowing/issuing bond is 5% Corporate tax rate 30% Dividend $2 here is [D1 or DO]? What is the value of D1 ? What is the value of DO What is the cost of equity (common stock) using dividend growth model ? (keep 3-digit after decimal point, e.g., 0.123) Using information from the Q1 What is the value of the beta for this firm ? What is the value of market risk premium ? (use decimal point) What is the cost of equity (common stock) using CAPM model ? (keep 2-digit after decimal point, e.g., 0.12) Using information from the Q1 What is the market value of stock ? (just keep integer without dollar sign and million, e.g. $100 million -> 100) What is the market value of debt ? (just keep integer without dollar sign and million, e.g. $100 million -> 100) What is the total firm value ? (just keep integer without dollar sign and million, e.g. $100 million -> 100) To compute WACC, there is E/V and D/E in the formula. What is the value for E/V and D/V ? (use decimal point) Using information from the Q1 In the following, which formula to compute WACC is correct ? A. WACC = 1 X RE + I x RD B. WACC = EX RE + V XRD C. WACC = $ Re + B x Ro x (1 tax rate) D. WACC = EX RE + DXRp X (1 - tax rate) What is the WACC for your firm using cost of equity from CAPM ? (keep 3-digit after decimal point, e.g., 0.123) After you computed the WACC for your firm, you know that the WACC of your competitor is 10%. That means the risk level of your firm is (higher or lower than your competitor? We know that WACC is the weighted average cost of capital, which indicates the average risk level of a firm. Given the following two statements, which one is correct ? (A, B, C, or D) 1. WACC can be used for every project/ division within a firm. II. To make a firm being profitable, the firm must earn returns higher than WACC A. Both I and II are true B. Both I and II are false C. I is true and II is false D. I is false and II is true