QUESTION 3 COST OF RETAINED EARNINGS (INTERNAL EQUITY). A firm's common stock currently sells for $28 per share. The firm recently paid a dividend of $3 per share on its common stock, and investors expect the dividend to grow at a constant rate of 5 percent per year. Calculate the firm's cost of retained earnings using the DCF approach. 16.25% 16.72% 15.71% None of the above QUESTION 4 COST OF COMMON STOCK (EXTERNAL EQUITY). A firm's common stock currently sells for $28 per share. The firm recently paid a dividend of $3 per share on its common stock, and investors expect the dividend to grow at a constant rate of 5 percent per year. Flotation cost for a new issue is 4% of the price. Calculate the firm's cost of common stock using the DCF approach. 16.25% 16.72% 15.71% None of the above QUESTION 5 WACC. A firm's target capital structure is 40 percent debt and 60 percent common equity. Its bonds have a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $1,000. The firm's marginal tax rate is 20 percent. The firm's policy is to use a risk premium of 4 percentage points when using the bond-yield-plus-risk-premium approach to find the cost of retained earnings (note that retained earnings is internally generated equity). The firm uses no preferred stock. Calculate the firm's weighted average cost of capital (WACC). 9.6% 13.44% 3.84% 16.00% None of the above QUESTION 6 COST OF COMMON EQUITY. A company's beta is 1.5, risk-free rate is 4 percent, and the market risk premium is 7 percent. Which of the following is the company's cost of retained earnings using the capital asset pricing model (CAPM) approach?? 14.50% 13.30% 12.44% None of the above