CH 12 Quiz Martin Industries just paid an annual dividend of $1.90 a share. The
ID: 2719032 • Letter: C
Question
CH 12 Quiz
Martin Industries just paid an annual dividend of $1.90 a share. The market price of the stock is $50.90 and the growth rate is 7.2 percent. What is the firm's cost of equity?
21.28 percent
12.01 percent
5.89 percent
10.45 percent
11.20 percent
Aaron's Rentals has 58,000 shares of common stock outstanding at a market price of $36 a share. The common stock just paid a $1.64 annual dividend and has a dividend growth rate of 2.8 percent. There are 12,000 shares of 6 percent preferred stock outstanding at a market price of $51 a share. The preferred stock has a par value of $100. The outstanding bonds mature in 17 years, have a total face value of $750,000, a face value per bond of $1,000, and a market price of $1,011 each. The bonds pay 8 percent interest, semiannually. The tax rate is 34 percent. What is the firm's weighted average cost of capital?
7.74 percent
8.68 percent
9.29 percent
9.97 percent
10.30 percent
International Exchange has three divisions: A, B, and C. Division A has the least risk and Division C has the most risk. The firm has an aftertax cost of debt of 6.1 percent and a cost of equity of 14.3 percent. The firm is financed with 35 percent debt and 65 percent equity. Division A's projects are assigned a discount rate that is 3 percent less than the firm's weighted average cost of capital. What is the discount rate applicable to Division A?
7.98 percent
8.27 percent
8.44 percent
9.48 percent
13.43 percent
Explanation / Answer
As per Chegg Guidelines we answer one question per post. I have answered more than 1 question. Kindly post remaining questions in separate post to get the best answers Growth rate, g 7.20% Dividend just paid,D0 1.90 Expected Dividend, D1 =1.90*107.2% 2.04 Market Price 50.90 Cost of Equity,ke = D1/P0 +g Cost of Equity,ke = 2.04/50.90 + 7.2% Cost of Equity,ke = 11.2%