Accessory Industries has 2 million shares of common stock outstanding, 1 million
ID: 2745280 • Letter: A
Question
Accessory Industries has 2 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 100 thousand bonds. If the common shares are selling for $22 per share, the preferred shares are selling for $10.50 per share, and the bonds are selling for to percent of par ($1000), what would be the weights used in the calculation of Accessory's WACC for common stock, preferred stock, and bonds, respectively? 33.33%, 33.33%, 33.33% 29.23%, 6.98%, 63.79% 64.52%, 32.26%, 3.22% 17.12%, 8.17%, 74.71% The average annual return on the S&P; 500 Index from 1986 to 1995 was 17.6 percent. The average annual T-bill yield during the same period was 9.8 percent. What was the market risk premium during these ten years? 8.2% 7.8% 8.8% 9.8% FlavR Co stock has a beta of 2.0, the current risk-free rate is 2, and the expected return on the market is 9 percent. What is FlavR Co's cost of equity? 11% 13% 16% 20% A company's current stock price is $65.40 and it is likely to pay a $2.25 dividend next year. since analysis estimate the company will have a 11.25% growth rate, what is its expected return? 3.44% 3.61% 11.25% 14.69%Explanation / Answer
Q.40
SOURCE AMOUNT(IN MILLION $) WEIGHT/PROPORTION(%)
COMMON STOCK 2 ( 2/3.1)*100= 64.52
PREFERRED STOCK 1 (1/3.1)*100=32.26
BONDS 0.1 (0.1/3.1)*100=3.22
TOTAL 3.1
So Answer is Option (3)
Q.41.
Average Annual Retur3n on SAP 500 Index(1986-1995) (Rm) = 17.6%
Average Annual T-Bill Yield(1986-1995)(Rf) = 9.8%
Market Risk Premium = Rm - Rf
= 17.6% - 9.8%
= 7.8%
So Answer is Option (2)
Q.42
Beta = 2.0
Rf=2%
Rm= 9%
Ke(Cost of Equity)= ?
CAPM Model:-
Ke = Rf + Beta (Rm- Rf)
= 2 + 2.0( 9 - 2)
= 16%
So answer is option (3)
Q. 43
Current Stock Price = $ 65.40
D1 = $ 2.25
g = 11.25%
Expected Return= ?
Expected Return = [D0(1+g)/ MP]+g or [D1/MP]+ g
= [2.25/65.40]+ 0.1125
= 0.1469 or 14.69%
So Answer is Option (4)