Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
45) Highway Express has paid annual dividends of $1.32, $1.33, $1.38, $1.40, and $1.42 over
the past five years, respectively. What is the average dividend growth rate?
A) 1.85 percent
B) 2.16 percent
C) 1.98 percent
D) 2.47 percent
E) 2.39 percent
46) Southern Bakeries just paid its annual dividend of $.48 a share. The stock has a market price
of $17.23 and a beta of .93. The return on the U.S. Treasury bill is 3.1 percent and the market
risk premium is 7.6 percent. What is the cost of equity?
A) 9.98 percent
B) 10.04 percent
C) 10.17 percent
D) 10.30 percent
E) 10.45 percent
47) National Home Rentals has a beta of 1.06, a stock price of $17, and recently paid an annual
dividend of $.92 a share. The dividend growth rate is 2.2 percent. The market has a rate of return
of 11.2 percent and a risk premium of 7.3 percent. What is the estimated cost of equity using the
average return of the CAPM and the dividend discount model?
A) 10.05 percent
B) 8.67 percent
C) 9.13 percent
D) 10.30 percent
E) 9.68 percent
48) Dee's Fashions has a growth rate of 3.2 percent and is equally as risky as the market while its
stock is currently selling for $32 a share. The overall stock market has a return of 10.9 percent
and a risk premium of 6.8 percent. What is the expected rate of return on this stock?
A) 10.0 percent
B) 9.2 percent
C) 10.9 percent
D) 11.3 percent
E) 11.7 percent
49) Tidewater Fishing has a current beta of 1.16. The market risk premium is 6.8 percent and the
risk-free rate of return is 2.9 percent. By how much will the cost of equity increase if the
company expands its operations such that the company beta rises to 1.18?
A) .28 percent
B) .14 percent
C) .26 percent
D) .12 percent
E) .43 percent
50) Street Corporation's common stock has a beta of 1.33. The risk-free rate is 3.4 percent and
the expected return on the market is 10.97 percent. What is the cost of equity?
A) 12.49 percent
B) 12.84 percent
C) 13.47 percent
D) 14.07 percent
E) 13.33 percent
51) Stock in Country Road Industries has a beta of 1.62. The market risk premium is 8.2 percent
while T-bills are currently yielding 2.9 percent. Country Road's last paid annual dividend was
$1.87 per share and dividends are expected to grow at an annual rate of 3.8 percent indefinitely.
The stock sells for $25 a share. What is the estimated cost of equity using the average return of
the CAPM and the dividend discount model?
A) 13.87 percent
B) 14.06 percent
C) 14.23 percent
D) 13.38 percent
E) 14.50 percent
52) Holdup Bank has an issue of preferred stock with a stated dividend of $7 that just sold for
$87 per share. What is the bank's cost of preferred?
A) 7.00 percent
B) 7.64 percent
C) 8.39 percent
D) 8.05 percent
E) 7.54 percent
53) Decline Inc. is trying to determine its cost of debt. The firm has a debt issue outstanding with
13 years to maturity that is quoted at 105.2 percent of face value. The issue makes semiannual
payments and has an embedded cost of 6 percent annually. What is the aftertax cost of debt if the
tax rate is 21 percent?
A) 4.30 percent
B) 4.92 percent
C) 4.17 percent
D) 5.43 percent
E) 5.58 percent
54) Jiminy's Cricket Farm issued a 20-year, 7 percent, semiannual bond four years ago. The bond
currently sells for 108 percent of its face value. What is the aftertax cost of debt if the company's
combined tax rate is 23 percent?
A) 4.96 percent
B) 4.78 percent
C) 4.15 percent
D) 4.12 percent
E) 3.86 percent
55) Hydro Systems has bonds outstanding with a face value of $1,000, 13 years to maturity, and
a coupon rate of 6.5 percent, paid annually. What is the company's pretax cost of debt if the
bonds currently sell for $1,056?
A) 5.87 percent
B) 6.42 percent
C) 4.71 percent
D) 5.36 percent
E) 5.55 percent
56) Fashion Wear has bonds outstanding that mature in 11 years, pay interest annually, and have
a coupon rate of 6.45 percent. These bonds have a face value of $1,000 and a current market
price of $994. What is the company's aftertax cost of debt if its tax rate is 21 percent?
A) 4.86 percent
B) 4.28 percent
C) 5.16 percent
D) 5.21 percent
E) 4.53 percent
57) Handy Man, Inc., has zero coupon bonds outstanding that mature in 4 years. The bonds have
a face value of $1,000 and a current market price of $798. What is the pretax cost of debt? (Use
semiannual compounding.)
A) 6.55 percent
B) 5.91 percent
C) 5.72 percent
D) 6.31 percent
E) 6.48 percent
58) The Pet Market has $1,000 face value bonds outstanding with 21 years to maturity, a coupon
rate of 6.4 percent, annual interest payments, and a current price of $892. What is the aftertax
cost of debt if the combined tax rate is 24 percent?
A) 6.79 percent
B) 7.43 percent
C) 4.61 percent
D) 7.08 percent
E) 5.65 percent
59) Jay's Bakery has a bond issue outstanding that matures in eight years. The bonds pay interest
semiannually. Currently, the bonds are quoted at 97.8 percent of face value and carry a coupon
rate of 5.7 percent. What is the aftertax cost of debt if the tax rate is 21 percent?
A) 4.88 percent
B) 4.16 percent
C) 5.87 percent
D) 4.78 percent
E) 6.05 percent
60) The outstanding bonds of Tech Express are priced at $1,023 and mature in 13 years. These
bonds have a face value of $1,000, a coupon rate of 6.5 percent, and pay interest semiannually.
The tax rate is 21 percent. What is the aftertax cost of debt?
A) 4.28 percent
B) 4.22 percent
C) 4.35 percent
D) 4.93 percent
E) 4.41 percent
61) Simple Foods has a zero coupon bond issue outstanding that matures in 14 years. The bonds
are selling at 56 percent of par value. What is the company's aftertax cost of debt if the combined
tax rate is 23 percent? (Use semiannual compounding.)
A) 4.48 percent
B) 3.13 percent
C) 3.22 percent
D) 3.73 percent
E) 2.88 percent
62) Grill Works has 6 percent preferred stock outstanding that is currently selling for $49 a
share. The market rate of return is 14 percent and the tax rate is 21 percent. What is the cost of
preferred stock if its stated value is $100 per share?
A) 12.77 percent
B) 12.29 percent
C) 12.67 percent
D) 12.24 percent
E) 12.54 percent
63) The Dry Well has 6.85 percent preferred stock outstanding with a market value per share of
$79, a stated value of $100 per share, and a book value per share of $29. What is the cost of
preferred stock?
A) 8.50 percent
B) 8.88 percent
C) 8.67 percent
D) 9.29 percent
E) 9.00 percent
64) The Well Derrick has 6.3 percent preferred stock outstanding that sells for $57 a share. This
stock was originally issued at $45 per share and has a stated value of $100 per share. What is the
cost of preferred stock if the relevant combined tax rate is 23 percent?
A) 11.22 percent
B) 10.94 percent
C) 10.45 percent
D) 11.05 percent
E) 11.37 percent
65) Theresa's Flower Garden has 650 bonds outstanding that are selling for $1,007 each, 2,100
shares of preferred stock with a market price of $68 a share, and 42,000 shares of common stock
valued at $44 a share. What weight should be assigned to the preferred stock when computing
the weighted average cost of capital?
A) 6.08 percent
B) 5.40 percent
C) 6.67 percent
D) 5.00 percent
E) 5.75 percent
66) Florida Groves has a $380,000 bond issue outstanding that is selling at 97.4 percent of face
value. The firm also has 2,600 shares of preferred stock valued at $61 a share and 37,500 shares
of common stock valued at $19 a share. What weight should be assigned to the common stock
when computing the weighted average cost of capital?
A) 55.75 percent
B) 62.20 percent
C) 58.75 percent
D) 61.03 percent
E) 57.40 percent
67) The Downtowner has 168,000 shares of common stock outstanding valued at $53 a share
along with 13,000 bonds selling for $1,008 each. What weight should be given to the debt when
the company computes its weighted average cost of capital?
A) 46.67 percent
B) 65.05 percent
C) 51.79 percent
D) 59.54 percent
E) 48.27 percent
68) Phillips Equipment has 6,500 bonds outstanding that are selling at 96.5 percent of par. Bonds
with similar characteristics are yielding 6.7 percent, pretax. The company also has 48,000 shares
of 5.5 percent preferred stock and 75,000 shares of common stock outstanding. The preferred
stock sells for $64 a share. The common stock has a beta of 1.32 and sells for $41 a share. The
preferred stock has a stated value of $100. The U.S. Treasury bill is yielding 2.2 percent and the
return on the market is 10.6 percent. The corporate tax rate is 21 percent. What is the weighted
average cost of capital?
A) 8.09 percent
B) 8.64 percent
C) 10.18 percent
D) 9.30 percent
E) 10.56 percent
69) Wayco Industrial Supply has a pretax cost of debt of 8.3 percent, a cost of equity of 14.7
percent, and a cost of preferred stock of 8.9 percent. The firm has 165,000 shares of common
stock outstanding at a market price of $33 a share. There are 15,000 shares of preferred stock
outstanding at a market price of $43 a share. The bond issue has a face value of $750,000 and a
market quote of 101. The company's tax rate is 21 percent. What is the weighted average cost of
capital?
A) 12.18 percent
B) 10.84 percent
C) 14.32 percent
D) 12.60 percent
E) 13.25 percent
70) Central Systems desires a weighted average cost of capital of 12.7 percent. The firm has an
aftertax cost of debt of 4.8 percent and a cost of equity of 15.4 percent. What debt-equity ratio is
needed for the firm to achieve its targeted weighted average cost of capital?
A) .37
B) .42
C) .56
D) .34
E) .44
71) Mullineaux Corporation has a target capital structure of 46 percent common stock, 5 percent
preferred stock, and the balance in debt. Its cost of equity is 15.8 percent, the cost of preferred
stock is 8.3 percent, and the aftertax cost of debt is 6.8 percent. What is the WACC given a tax
rate of 23 percent?
A) 9.89 percent
B) 10.43 percent
C) 11.02 percent
D) 11.38 percent
E) 12.17 percent
72) Cookie Dough Manufacturing has a target debt-equity ratio of .76. Its cost of equity is 15.3
percent, and its pretax cost of debt is 9 percent. What is the WACC given a tax rate of 21
percent?
A) 11.76 percent
B) 12.78 percent
C) 13.11 percent
D) 11.48 percent
E) 12.53 percent
73) Rosa's has a weighted average cost of capital of 11.73 percent. The cost of equity is 15.8
percent and the pretax cost of debt is 7.6 percent. The tax rate is 21 percent. What is the target
debt-equity ratio?
A) .89
B) 1.87
C) 1.41
D) .53
E) .71
74) Dee's Toys has a target debt-equity ratio of .62. Its WACC is 11.3 percent and the tax rate is
21 percent. What is the cost of equity if the aftertax cost of debt is 6.3 percent?
A) 15.15 percent
B) 15.04 percent
C) 14.68 percent
D) 14.79 percent
E) 14.40 percent
