1. The risk free rate of return is 5% and the expected return on the market portfolio is 14%. Broadways Inc. has a beta of 1.5 and a standard deviation of returns of 20%. Broadways' marginal tax rate is 35%. Analysts expect Starship's net income to grow by 7.5% per year for the next 5 years. Using the Capital Asset Pricing Model, what is Starship Enterprises' cost of retained earnings?
2. Vega Inc. stock is selling for $20 and their investment bank told them flotation costs are 9.0%. Vega announced it will offer $0.35 dividend in one year and will grow by 3.0% a year. What is Vega%u2019s cost of issuing new stock?
3. Lavin's Lighting has decided it is going to offer preferred stock that is going to pay $0.70 a year. Lavin's Lighting found out their investment bank should sell the preferred stock for $35 but the floatation costs will run about 12% of the sale price. What is the cost of this preferred stock? (Round to the second decimal place)
4. Book World%u2019s management wants to determine its WACC. If the firm just be became a business today and currently has $20 million of assets that are financed by $7,500,000 of preferred stock, $5,000,000 in bonds and $7,500,000 in equity. All securities were issued today and the firm%u2019s tax rate is 35%. The preferred stock will pay $1 annually and was sold for $17.50 with a flotation cost of $0.75. The firm%u2019s bonds were sold for $1000 with a flotation cost of $25. The bonds are for 10 years and offer a coupon of 8.25%, paid annually. The firm%u2019s stock was sold for $9 with a flotation cost of 5%. The firm already announced its first dividend will be paid in one year and will be $0.75 and will grow annually at a growth rate of 5%. What is the firm%u2019s WACC?