The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 4% per year. Callahan's common stock currently sells for $24.00 per share; its last dividend was $1.50; and it will pay a $1.56 dividend at the end of the current year.

a. Using the DCF approach, what is its cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations.

%

b. If the firm's beta is 1.50, the risk-free rate is 7%, and the average return on the market is 13%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places.

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c. If the firm's bonds earn a return of 12%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places.

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d. If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity? Round your answer to two decimal places. Do not round your intermediate calculations.

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2.The Evanec Company's next expected dividend, D1, is $2.73; its growth rate is 6%; and its common stock now sells for $35. New stock (external equity) can be sold to net $31.50 per share.

a. What is Evanec's cost of retained earnings, rs? Round your answer to two decimal places. Do not round your intermediate calculations.

rs=%___________

b. What is Evanec's percentage flotation cost, F? Round your answer to two decimal places.

F =%_____________

c. What is Evanec's cost of new common stock, re? Round your answer to two decimal places. Do not round your intermediate calculations.

re=%______________

3.Palencia Paints Corporation has a target capital structure of 45% debt and 55% common equity, with no preferred stock. Its before-tax cost of debt is 10%, and its marginal tax rate is 40%. The current stock price is P0= $35.00. The last dividend was D0= $3.25, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC? Round your answers to two decimal places. Do not round your intermediate calculations.

a. rs=%_______

b. WACC =%________

4.The Pawlson Company's year-end balance sheet is shown below. Its cost of common equity is 17%, its before-tax cost of debt is 10%, and its marginal tax rate is 40%. Assume that the firm's long-term debt sells at par value. The firm's total debt, which is the sum of the company's short-term debt and long-term debt, equals $1,112. The firm has 576 shares of common stock outstanding that sell for $4.00 per share.

Assets Liabilities And Equity

Cash $ 120 Accounts payable and accruals $ 10

Accounts receivable 240 Short-term debt 52

Inventories 360 Long-term debt 1,060

Plant and equipment, net 2,160 Common equity 1,758

Total assets $2,880 Total liabilities and equity $2,880

Calculate Pawlson's WACC using market-value weights. Round your answer to two decimal places. Do not round your intermediate calculations.

%__________

5.Olsen Outfitters Inc. believes that its optimal capital structure consists of 50% common equity and 50% debt, and its tax rate is 40%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $3 million of retained earnings with a cost of rs= 14%. New common stock in an amount up to $10 million would have a cost of re= 16%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd= 10% and an additional $4 million of debt at rd= 12%. The CFO estimates that a proposed expansion would require an investment of $7.8 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.

%__________