Question 1

Other than dividend growth model, we can employ Market Multiple Analysis method for stock valuation. We suppose a firm's estimated earnings per share is $2.25. The average price to earnings (P/E) ratio for similarly publicly traded firms is 10. What's the firm's expected stock price?

$25

$20

$22.5

$50

Question 2

To help finance a major expansion, a company sold a noncallable bond several years ago that now has 15 years to maturity.This bond has a 10.25% annual coupon, paid semiannually, it sells at a price of $1,025, and it has a par value of $1,000.If the company?s tax rate is 30%, what component cost of debt should be used in the WACC calculation?

5.96%

6.23%

6.98%

6.51%

Question 3

You were hired as a consultant to a company, whose target capital structure is 40% debt, 10% preferred, and 50% common equity.The before-tax cost of debt is 6.0%, the cost of preferred is 8.0%, and the cost of retained earnings is 13.0%.The corporate tax rate is 28%. The firm will not be issuing any new stock.What is its WACC?

8.72%

9.02%

9.88%

10.15%