Homework #6F (Cost of equity financing)

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University of Maryland, University College *

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330 7980

Subject

Finance

Date

Jan 9, 2024

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docx

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3

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Question 3 (1 point) Saved Paul Sharp is CFO of Fast Rocket Inc. He tries to determine the cost of equity financing for his company. The stock has a beta of 2.13. Paul estimated that the market return is 9.94%. The current rate for 10-year Treasury Bonds is 3.44%. Calculate cost of common equity financing using CAPM - SML formula. Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box) Your Answer: Answer units Question 4 (1 point) Saved Nature Food Inc. needs to estimate the cost of financing on preferred stock. The firm has preferred stock outstanding that pays a constant dividend of $4.14 per year. That preferred stock is currently selling for $78.50. However, the underwriter would charge flotation costs of $2.63 per share. What is the form’s cost of preferred stock financing? Round the answers to two decimal places in percentage form. (FWite the percentage sign in the "units" box) Your Answer: 5.50 % | Answer units
Question 5 (1 point) Saved The Yo-Yo Corporation tries to determine the appropriate cost for retained earnings to be used in capital budgeting analysis. The firm's beta is 0.89. The rate on six-month T-bills is 3.47%, and the return on the S&P 500 index is 5.74%. What is the appropriate cost for retained earnings in determining the firm’s cost of capital? Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units” box). Your Answer: Answer units Question 6 (1 point) Saved Heavy Rain Corporation just paid a dividend of $2.28 per share, and the firm is expected to experience constant growth of 2.87% over the foreseeable future. The common stock is currently selling for $59.82 per share. What is Heavy Rain's cost of retained earnings using the Gordon Model (DDM) approach? Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box) Your Answer: Answer units.
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