A company just paid a $2.00 share dividend on its common stock. The dividend is expected to grow at a constant rate of 7 percent per year.The stock…

A company just paid a $2.00 share dividend on its common stock. The dividend is expected to grow at a constant rate of 7 percent per year.The stock currently sells for $42 a share. If the company issues additional stock, it must pay its investment banker a flotation cost of $1.00 per share, so the stock price net of floatation costs would equal to $41. What is the cost of newly issued common stock?

1)11.98%

2)1..88%

3)12.22%

4)12.30%

5)11.76%

Deves Inc. Recently hired you as a consultant to estimate the company’s WACC. YOu have obtained th e following info. The firm’s noncallable bonds mature in 20years, have an 8.00percent annual coupon, a par value of $1,000, and a market price of 1075.00. The company’s tax rate is 40percent. The risk free rate is 4.50percent, the market risk premium is 5.50percent, and the stock’s beta is 1.20. The target capital structure consists of 35percent debt and the balanc ein common equity. The firm uses the CAPM to estimate the cost of equity and it does not expect to issue any new common stock. What is the WACC?

(the answer will hover in these numbers, maybe the decimal might be off from the given multple choice answers)

1)8.74percent

2)9.18percent

3)7.52percent

4)8,13percent

5)9.53 percent

If you were an investor in a firm, which if the following would you view negatively. Assume other things are held constant

1)The firm’s days sales outstanding is 42 days, whereas the industry avg. is 38 days.

2)The firm’s times interest earned is 8.0x whereas the industry avg is 7.0x

3)The firm’s inventory turnover is 9.8x, whereas the industry average is 8.2x

4)The company’s toalt asseet turnover is 2.0x, while the industry avg. 1.5x

Granalli Systems stock currently sells for 12.63 per share. The dividend is projected to increase at a constant rate of 3.5percent per year. The required rate of return on the stock is 11.5percent. What is the stock’s expected price 5 years from now ?

1)15.5

b)14.73

c)13.01

d)15

e)13.43

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