The Tenant Company, founded in 1870, has evolved into a leading producer of large-sized floor sweepers and scrubbers. Its latest dividend per share was $0.96, its earnings per share was $1.85, and its return on equity was 16.9%.

Based on these data, calculate a value for Tenant common stock by applying the constant growth dividend valuation model. Assume that an investor's required rate of return is a 5% premium over the risk-free rate of return of 7%.

To your disappointment, the calculation in part a results in a value below the stock's current market price. Consequently, you apply the constant growth dividend valuation model using the same required rate of return as in part a, but using the company's stated goal of earning 20% per year on shareholder's equity and maintaining a 30% dividend payout ratio. However, you find that you are unable to calculate a meaningful answer. Explain why you cannot calculate a meaningful answer, and identify an alternative valuation model that may be more appropriate.

iv A stock analyst has obtained the following information about J-Mart:

(1) The company has noncallable bonds with 20 years maturity remaining and a maturity value of $1,000. The bonds have a 12 percent annual coupon and currently sell at a price of $1,273.8564.

(2) Over the past four years, the returns on the market and on J-Mart were as follows:

Year Market J-Mart

2006 12.0% 14.5%

2007 17.2 22.2

2008 -3.8 -7.5

2009 20.0 24.0

Using Market and J-Mart return information and a calculator's regression feature we find b = 1.3585.

(3) The current risk-free rate is 6.35 percent, and the expected return on the market is 11.35 percent. The company's tax rate is 35 percent.

The company anticipates that its proposed investment projects will be financed with 70 percent debt and 30 percent equity.

What is the company's estimated weighted average cost of capital (WACC)?