1, Your investment club has only two stocks in its portfolio. $15,000 is invested in a stock with a beta of 0.5, and $25,000 is invested in a stock with a beta of 1.9. What is the portfolio’s beta? Do not round intermediate calculations. Round your answer to two decimal places.
2, Required Rate of Return
AA Corporation’s stock has a beta of 0.8. The risk-free rate is 3%, and the expected return on the market is 11%. What is the required rate of return on AA’s stock? Do not round intermediate calculations. Round your answer to one decimal place.
%
3, Required Rate of Return
Suppose rRF = 6%, rM = 11%, and rA = 9%.
Calculate Stock A’s beta. Round your answer to one decimal place.
If Stock A’s beta were 1.1, then what would be A’s new required rate of return? Round your answer to one decimal place.
%
4, Required Rate of Return
Stock R has a beta of 1.5, Stock S has a beta of 0.45, the expected rate of return on an average stock is 8%, and the risk-free rate is 5%. By how much does the required return on the riskier stock exceed that on the less risky stock? Do not round intermediate calculations. Round your answer to two decimal places.
%
5, After-Tax Cost of Debt
LL Incorporated’s currently outstanding 7% coupon bonds have a yield to maturity of 4.8%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 25%, what is LL’s after-tax cost of debt? Round your answer to two decimal places.
%
6, Cost of Preferred Stock with Flotation Costs
Burnwood Tech plans to issue some $50 par preferred stock with a 5% dividend. A similar stock is selling on the market for $65. Burnwood must pay flotation costs of 7% of the issue price. What is the cost of the preferred stock? Round your answer to two decimal places.
7, Cost of Equity: Dividend Growth
Summerdahl Resort’s common stock is currently trading at $38 a share. The stock is expected to pay a dividend of $2.50 a share at the end of the year (D1 = $2.50), and the dividend is expected to grow at a constant rate of 3% a year. What is the cost of common equity? Round your answer to two decimal places.
%
8, Cost of Equity: CAPM
Booher Book Stores has a beta of 0.6. The yield on a 3-month T-bill is 5% and the yield on a 10-year T-bond is 7%. The market risk premium is 6.5%, and the return on an average stock in the market last year was 13%. What is the estimated cost of common equity using the CAPM? Round your answer to two decimal places.
%
9, WACC
Shi Import-Export’s balance sheet shows $300 million in debt, $50 million in preferred stock, and $250 million in total common equity. Shi’s tax rate is 25%, rd = 7%, rps = 8.1%, and rs = 11%. If Shi has a target capital structure of 30% debt, 5% preferred stock, and 65% common stock, what is its WACC? Round your answer to two decimal places.
