Beatle Company currently pays a $0.60 dividend and its current stock price is $22.45. Assuming the company’s cost of equity capital is 10% use the dividend discount valuation model to estimate the company’s growth rate.
A) 4.0%
B) 1.7%
C) 7.3%
D) 10.0%
Answer: C
Rationale: Use the following
formula to solve for the growth rate: $22.45 = $.60 / (0.10 – g).
26. Assume that a
company has a beta of .88 and the risk-free rate is 5%. If the market risk premium is 6% calculate
cost of equity capital, using the capital asset pricing model:
A) 6.0%
B) 5.3%
C) 10.4%
D) 10.3%
Answer: D
Rationale:
Cost
of equity capital = 0.05 + .88*(0.06)
27. Gibson Corporation
has $185 million dollars of interest-bearing debt outstanding at the end of
fiscal 2012 year. In addition, the
company incurred $26 million dollars of interest expense in 2012. If the company has a marginal tax rate of 30%
calculate Gibson’s cost of debt capital.
A) 14.1%
B) 4.2%
C) 9.8%
D) 11.1%
Answer: C