A firm’s beta is 2.2. The risk-free rate is 5%, and the expected market return is 10%. What is the firm’s cost of common stock using CAPM approach?     5.0%     10.0%     15.0%     16.0%   2. A firm’s common stock currently sells for $40 per share.  The firm recently paid a dividend of $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10% per year. What’s the firm’s cost of common stock using DCF approach?     9.5%     10.0%     15.5%     16.5% 3. A firm’s preferred stock currently sells for $90 per share and pays a dividend of $10 per share.  However, the firm will only receive $80 per share from the sale of new preferred stock due to the floatation costs. What’s the firm’s component cost of preferred stock?     9.5%     10.0%     12.5%     13.6%   4. A firm has issued a bond. The bond has a 12% coupon, paid semiannually, a current maturity of 20 years, and sell for $1,171.59.  The firm’s marginal tax rate is 40%.  What’s the firm’s after-tax component cost of debt?     5.0%     6.0%     7.0%     12%

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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1. A firm’s beta is 2.2. The risk-free rate is 5%, and the expected market return is 10%. What is the firm’s cost of common stock using CAPM approach?

   

5.0%

   

10.0%

   

15.0%

   

16.0%
 

2. A firm’s common stock currently sells for $40 per share.  The firm recently paid a dividend of $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10% per year. What’s the firm’s cost of common stock using DCF approach?

   

9.5%

   

10.0%

   

15.5%

   

16.5%

3. A firm’s preferred stock currently sells for $90 per share and pays a dividend of $10 per share.  However, the firm will only receive $80 per share from the sale of new preferred stock due to the floatation costs. What’s the firm’s component cost of preferred stock?

   

9.5%

   

10.0%

   

12.5%

   

13.6%
 

4. A firm has issued a bond. The bond has a 12% coupon, paid semiannually, a current maturity of 20 years, and sell for $1,171.59.  The firm’s marginal tax rate is 40%.  What’s the firm’s after-tax component cost of debt?

   

5.0%

   

6.0%

   

7.0%

   

12%

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