1. suppose you are the money manager of a 150 million investment fund. The fund consists of four stocks with the following investments and betas:

stock investment amount $m beta

A 50 1.6

B 5 -0.05

C 60 1.3

D 35 0.75

• if the market required rate of return is 14% and the risk free rate is 6%, what is the funds required rate of return?

2.a stock has a required rate of return of 13%. if the risk free rate is 5% and the market risk premium is 6%

• what is the stocks beta?
• if the market risk premium increased to 8%, what would happen to the stocks required rate of return and explain why this would occur? Assume that the risk free rate and the beta remain unchanged

what is the cost of preferred stock ,r_{p ,} for Matrix industries if it can be issued at $60 per share, and it pays a constant annual dividend of $5 per share?

Resene Decor has a target capital structure of 40% debt and 60% common eqquity, with no preferred stock. Resene Decor before tax cost of debt is 13% and its marginal tax rate is 30%. the current stock price is $26.50. the last dividend was D₀₌ $2.10 AND THESE DIVIDENDS ARE EXPECTED TO GROW AT A CONSTANT RATE OF 5%.

1. What is the cost of common equity?
2. what is the resene Decors WACC?

Andy ltd balance sheet is below (thousands of dollars). its cost of common equity is 14%, its before tax cost of debt is 10% and its marginal tax rate is 30%. Assume that the firm long term debt sells at par value. the firm has 600000 shares in common stock outstanding that sell for $5 per share

• CALCULATE ANDYS WACC using market value weights

Cash 195

accounts receivable 295

inventories 385 long term debt 1495

PPE 2290 Common equity 1670

total assets 3165 total liabilities n equity 3165

a firm has a capital structure containing 40% debt, 20% preferred stock and 40% common stock euity. the firms cost of debt (pre tax) is 8.5% and its preferred stock dividend is $3.50. the preferred stocks current market price is $50 per share. the firms common stock has a beta of 0.95 and the risk free rate is 5% and the return on the market is 14%. the firms tax rate is 30%

• what is the firms cost of preferred stock
• what is the firms cost of common stock
• calculate the firms after tax weighted average cost of capital?
• the firm decided to retire some of its debt by selling more common stock. the new capital structure is 25% debt, 55% equity and 20% preferred stock. assuming that the costs of equity and debt do not change, what is the firms new after tax WACC?