Sales $1,000 Net Income $50 Total Assets $2,000 Shareholder equity $750 Tax rate 40.0%

Bond Issue: 1.5 million bonds that are $1,000 par value 20-year 5.0% coupon bonds with semiannual payments with a yield to maturity of 7.0%.

100.0 million shares of stock outstanding Market price per share $20.00 2.0 million shares of $8.00 per share dividend preferred stock Market price per share of preferred stock $225.00 Percentage flotation costs per share for preferred stock 8.0% Company's stock beta 1.25 Risk free rate 3.0% Expected return on the market 9.5% Market risk premium 6.5% Expected dividend next year on common stock $2.00 per share Expected growth rate in common stock dividends 6.0%

1. Calculate the percentage of common stock in the company's market value capital structure

a. 44.08%

b. 45.73%

c. 49.59%

d. 55.10%

e. 62.26%

2. Calculate the CAPM required return on the company's common stock

a. 9.68%

b. 10.01%

c. 11.13%

d. 12.24%

e. 13.35%

3. Calculate the DCF (dividend growth model) required return on the company's common stock

a. 6.67%

b. 10.60%

c. 14.40%

d. 16.00%

e. 16.16%

4. Calculate the required return on the company's preferred stock.

a. 3.86%

b. 4.06%

c. 4.25%

d. 4.44%

e. 4.64%