The bonds for DMC Inc. provide yield-to-maturity of 10%. Its cost of equity is 14%

The target capital structure of DMC Inc. is 40% equity and 60% bonds.

If DMC Inc. income-tax rate is 28%. Find its WACC.

	A.	9.92%
	B.	10.44%
	C.	7.46%
	D.	11.26%
	E.	12.24%

10 points

QUESTION 2

The expected rate of return on the market is 12%. The firm's stock beta is 1.6. The risk-free rate is 8%. Find the cost of equity.

	A.	25.2%
	B.	20.0%
	C.	12.8%
	D.	24.8%
	E.	14.4%

10 points

QUESTION 3

Find the growth rate in earnings. The net income is $20M. The book value of equity is $100M.

The payout ratio is 40%.

	A.	12%
	B.	13%
	C.	14%
	D.	15%
	E.	10%

10 points

QUESTION 4

The ABC Inc. common share price is $30 per share. The last year it paid $3.00 per share in dividends, and it expects the dividends per share to grow at a constant rate of 5%. Using the dividend growth or discounted cash flow approach find the cost of equity.

	A.	14%
	B.	16%
	C.	17%
	D.	17.5%
	E.	18%

10 points

QUESTION 5

Theoretically, which risk measure is the best in most situations

Stand-alone risk

Market risk

Corporate risk

Insurance risk

None of the above

	A.	Stand-alone risk
	B.	Market risk
	C.	Corporate risk
	D.	Insurance risk
	E.	None of the above

10 points

QUESTION 6

The after-tax cost of debt is 6%. The cost of preferred stock is 8% and the cost of equity is 12.0%

The stock price is %40. There are 4 million shares of stock. The market values of the firms preferred stock and bonds are $30M and $80M, respectively. Find the WACC for HMI Inc.

	A.	7.56%
	B.	8.34%
	C.	5.25%
	D.	10.34%
	E.	9.77%

10 points

QUESTION 7

BBS Inc. bond's cost of debt is 11%. Using the own-bond-yield plus-judgmental risk premium of 4%. Estimate BBS Inc. cost of equity

	A.	15%
	B.	7%
	C.	9.5%
	D.	7.5%
	E.	None of the above

10 points

QUESTION 8

FIN inc. pays 60% of its earnings in dividends.

Its current earning per share is $12.00 and it was $8.00 eight years ago.

Assume that past historical growth rate will continue in the future.

If the current stock price is 50.00. What is the cost of equity?

	A.	15.4%
	B.	17.89%
	C.	20.34%
	D.	23.45%
	E.	25.89%

10 points

QUESTION 9

The weighted average cost of Capital is also known as the marginal cost of capital

True

False

10 points

QUESTION 10

EBC Inc. plans to issue a preferred stock at a market price of $80 per share. The floatation cost is 10%.

The dividend rate is 6% of the par value of $100. What is the cost of preferred stock? Ignore the floatation costs.

	A.	7.5%
	B.	8.0%
	C.	7.0%
	D.	6.0%
	E.	5.0%