Question 1 (10)

Mature Products Corporation produces goods that are very mature in their product life cycles. Mature Products Corporation is expected to pay a dividend in year 1 of R2.00, a dividend of R1.50 in year 2, and a dividend of R1.00 in year 3. After year 3, dividends are expected to decline at a rate of 1% per year. An appropriate required rate of return for the stock is 10%. The stock should be worth?

Question 2 (3)

Nico Corporation's common stock currently sells for R180 per share. Nico just paid a dividend of R10.18 and dividends are expected to grow at a constant rate of 6 percent forever. If the required rate of return is 12 percent, what will Nico Corporation's stock sell for one year from now?

Question 3 (4)

Tangshan China Company's stock is currently selling for R80.00 per share. The expected dividend one year from now is R4.00 and the required return is 13 percent. What is Tangshan's dividend growth rate assuming that dividends are expected to grow at a constant rate forever?

Question 4 (5)

Nico Custom Cycles' common stock currently pays no dividends. The company plans to begin paying dividends beginning 3 years from today. The first dividend will be R3.00 and dividends will grow at 5 percent per year thereafter. Given a required return of 15 percent, what would you pay for the stock today?

Question 5 (7)

A firm has determined its optimal structure which is composed of the following sources and target market value proportions.

Debt: The firm can sell a 15-year, R1,000 par value, 8 percent bond for R1,050. A flotation cost of 2 percent of the face value.

Common Stock: A firm's common stock is currently selling for R75 per share. The dividend expected to be paid at the end of the coming year is R5. Its dividend payments have been growing at a constant rate of 2%. It is expected that to sell, a new common stock issue must be underpriced R2 per share and the firm must pay R1 per share in flotation costs. Additionally, the firm has a marginal tax rate of 40 percent. Calculate, the weighted average cost of capital?

Question 6 (10)

James Brown Limited has one million ordinary shares in issue. It also has 500 000 preference shares in issue with a preference dividend of 6% on price and currently sells for R3 per share. In its capital structure, it has 200 bonds outstanding, with a coupon rate of 9%. The bonds have 10 years to maturity and the yield-to-maturity is 12% (YTM). The equity shares currently sell for R2 each and have a beta of 0.9. The market risk premium is 8%, T-bills are yielding 7%. James Brown's tax rate is 30%.

Calculate the weighted average cost of capital.