Question

Hardy Locks, Inc. common shares sell for $32 per share. The firm expects to set their next annual dividend at $2 per share and it expects future dividends to grow at 8 percent per year, indefinitely. The current risk-free rate is 2 percent, the expected rate on the market is 10 percent, and the stock has a beta of 1.5. Using the constant growth model, the firm's cost of equity is more than 13.75 percent but less than 14.50 percent

Select one:

True

False

Tall Fences, Inc. has a $4 million ($1000 face value) 10-year bond issue selling for 107.5 percent of par that carries a coupon rate of 7.6 percent, paid semi-annually. As a result, the firm’s before-tax component cost of debt is more than 6.75 percent but less than 7.25%

Select one:

True

False

A firm has 70,000 shares of common stock outstanding, 10,000 shares of preferred stock outstanding, and 1,000 bonds with a market value of $994,000. If the common shares are selling for $40 per share and the preferred shares are selling for $45 per share, then the weight used for common stock in the computation of the WACC for this firm is less than 67.5 percent but more than 64.5 percent

Select one:

True

False

Answer 1