### FIN5080 QUIZ 6 Complete Solution

**FIN5080 QUIZ 6 Complete Solution**

**QUESTION 1**

** **A stock just paid a dividend of D_{0} = $1.1. The required rate of return is r_{s} = 9.2%, and the constant growth rate is g = 6%. What is the current stock price?
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**QUESTION 2**

ABC Enterprises' stock is expected to pay a dividend of $1.6 per share. The dividend is projected to increase at a constant rate of 4.5% per year. The required rate of return on the stock is 19%. What is the stock's expected price 3 years from today (i.e. solve for P3)?

** QUESTION 3**

If D_{1} = $3.74, g (which is constant) = 2%, and P_{0} = $20.76, what is the stock’s expected dividend yield for the coming year?

** QUESTION 4**

ABC Inc., is expected to pay an annual dividend of $3.5 per share next year. The required return is 13.6 percent and the growth rate is 7.7 percent. What is the expected value of this stock five years from now?
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** QUESTION 5**

The common stock of Connor, Inc., is selling for $58 a share and has a dividend yield of 2 percent. What is the dividend amount?

** QUESTION 6**

ABC is expected to pay a dividend of $3.4 per share at the end of the year. The stock sells for $136 per share, and its required rate of return is 13.6%. The dividend is expected to grow at some constant rate, g, forever. What is the growth rate (i.e. solve for g)?

** QUESTION 7**

ABC Company's last dividend was $0.7. The dividend growth rate is expected to be constant at 24% for 2 years, after which dividends are expected to grow at a rate of 7% forever. The firm's required return (r_{s}) is 11%. What is its current stock price (i.e. solve for Po)?

** QUESTION 8**

ABC’s last dividend paid was $2.5, its required return is 19.6%, its growth rate is 3.5%, and its growth rate is expected to be constant in the future. What is Sorenson's expected stock price in 7 years, i.e., what is P7?

** QUESTION 9**

ABC's stock has a required rate of return of 19.2%, and it sells for $41 per share. The dividend is expected to grow at a constant rate of 5.9% per year. What is the expected year-end dividend, D_{1}?

** QUESTION 10**

A stock's next dividend is expected to be $1.5. The required rate of return on stock is 16.3%, and the expected constant growth rate is 5.6%. What is the stock's current price?

** QUESTION 11**

A stock is expected to pay a dividend of $2.4 at the end of the year. The required rate of return is r_{s} = 16.1%, and the expected constant growth rate is g = 6.3%. What is the stock's current price?

** QUESTION 12**

ABC's last dividend was $4.5. The dividend growth rate is expected to be constant at 33% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (r_{s}) is 14%, what is its current stock price (i.e. solve for Po)?

** QUESTION 13**

If D_{1} = $3.9, g (which is constant) = 4.2%, and P_{0} = $77.2, what is the stock’s expected total return for the coming year?

** QUESTION 14**

ABC just paid a dividend of D_{0} = $2.4. Analysts expect the company's dividend to grow by 32% this year, by 21% in Year 2, and at a constant rate of 6% in Year 3 and thereafter. The required return on this stock is 11%. What is the best estimate of the stock’s current market value?

** QUESTION 15**

If last dividend = $4.8, g = 4.7%, and P_{0} = $67.2, what is the stock’s expected total return for the coming year?

** QUESTION 16**

A stock just paid a dividend of $1.9. The required rate of return is 12.1%, and the constant growth rate is 3.6%. What is the current stock price?

** QUESTION 17**

The common stock of Wetmore Industries is valued at $56.7 a share. The company increases their dividend by 6.2 percent annually and expects their next dividend to be $3. What is the required rate of return on this stock?

** QUESTION 18**

ABC Enterprises' stock is currently selling for $94.8 per share. The dividend is projected to increase at a constant rate of 6% per year. The required rate of return on the stock is 12%. What is the stock's expected price 5 years from today (i.e. solve for P5)?

** QUESTION 19**

Several years ago, the ABC Company sold a $1,000 par value bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $925 and the company’s tax rate is 40%. What is the after-tax cost of debt?

**QUESTION 20**

The 8 percent annual coupon bonds of the ABC Co. are selling for $880.76. The bonds mature in 10 years. The bonds have a par value of $1,000 and payments are made semi-annually? What is the before-tax cost of debt?

**QUESTION 21**

You were hired as a consultant to ABC Company, whose target capital structure is 35% debt, 15% preferred, and 50% common equity. The before-tax cost of debt is 6.50%, the yield on the preferred is 6.00%, the cost of common stock is 11.25%, and the tax rate is 40%. What is the WACC?

** QUESTION 22**

If the market value of debt is $107,763, market value of preferred stock is $90,535, and market value of common equity is 292,235, what is the weight of preferred stock?

**QUESTION 23**

ABC Inc.'s perpetual preferred stock sells for $56.9 per share, and it pays an $8.9 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of $4 per share. What is the company's cost of preferred stock for use in calculating the WACC?

**QUESTION 24**

The 7 percent annual coupon bonds of the ABC Co. are selling for $950.41. The bonds mature in 8 years. The bonds have a par value of $1,000 and payments are made semi-annually. If the tax rate is 35%, what is the after-tax cost of debt?

** QUESTION 25**

The before-tax cost of debt is 6 percent. What is the after-tax cost of debt if the tax rate is 41 percent?

** QUESTION 26**

ABC Industries will pay a dividend of $4 next year on their common stock. The company predicts that the dividend will increase by 3 percent each year indefinitely. What is the dividend yield if the stock is selling for $24 a share?

** QUESTION 27**

ABC, Inc., has 64 shares of common stock outstanding at a price of $69 a share. They also have 359 shares of preferred stock outstanding at a price of $98 a share. There are 897, 8 percent bonds outstanding that are priced at $28. The bonds mature in 16 years and pay interest semiannually. What is the capital structure weight of the preferred stock?

** QUESTION 28**

The 8.5 percent annual coupon bonds of the ABC Co. are selling for $1,179. The bonds mature in 12 years. The bonds have a par value of $1,000. If the tax rate is 30%, what is the after-tax cost of debt?

** QUESTION 29**

ABC Industries will pay a dividend of $3 next year on their common stock. The company predicts that the dividend will increase by 6 percent each year indefinitely. What is the firm’s cost of equity if the stock is selling for $25 a share?

** QUESTION 30**

The 8 percent annual coupon bonds of the ABC Co. are selling for $1,080.69. The bonds mature in 10 years. The bonds have a par value of $1,000. What is the before-tax cost of debt?

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**QUESTION 31**

The ABC Company has a cost of equity of 18.7 percent, a pre-tax cost of debt of 5.6 percent, and a tax rate of 30 percent. What is the firm’s weighted average cost of capital if the proportion of debt is 61%?

** QUESTION 32**

If the market value of debt is $104,892, market value of preferred stock is $77,164, and market value of common equity is 204,138, what is the weight of common equity? Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

**FIN5080 Quiz 6 Complete Solution**

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