1) ABC, Inc. has 6 percent bonds outstanding that mature in 20 years. The bonds pay interest semiannually and have a face value of $1,000. Currently, the bonds are selling for $814 each. What is the firm’s after-tax cost of debt if the tax rate is 27%? 2) Suppose the nominal rate is 21.9% and the inflation rate is 5.3%. Solve for the real rate. Use the Fisher Equation to get your anser. 3) The common stock of ABC Industries is valued at $26.7 a share. The company increases their dividend by 7.4 percent annually and expects their next dividend to be $2.56. What is the required rate of return on this stock? 5) The beta of the risk-free asset is: a)0 b)1 c)1.5 d)2 4) You have observed the following returns on ABC’s stocks over the last six years: 19.2%, 3.2%, 13.6%, -4.6%, 14.2%, -2.9% What is the geometric average returns on the stock over this six-year period. 6) The spot rate for the pound is £0.6673 = $1 and the spot rate for the Canadian dollar is C$1.2369 = $1. What is the £/C$ cross rate? Enter your answer rounded off to FOUR decimal points. 7) One year ago, you puchased 67 shares of ABC stock for $23.3 per share. During the year, you received a dividend of $2.5 per share. Today, you sold all your shares for $27.1. What are the percentage return on your investment? 9) Suppose that today’s stock price is $31. If the required rate on equity is 16.6% and the growth rate is 4.2%, compute the expected dividend (i.e. compute D1) 8) If the market value of debt is $81,289, market value of preferred stock is $91,072, and market value of common equity is 157,134, what is the weight of preferred stock? 10) You want to create a portfolio as risky as the market. Suppose you invest your money in Stocks A, B, C, and the risk-free asset. What is the weight of Stock C in your portfolio? Stock Weights(%) Beta A 22 1.2 B 28 0.6 C ? 1.3 Rf ? ? 12) The ABC Company has a cost of equity of 17.1 percent, a pre-tax cost of debt of 6.3 percent, and a tax rate of 26 percent. What is the firm’s weighted average cost of capital if the weight of debt is 36 percent? 14) The ABC Co. has $1,000 face value stock outstanding with a market price of $870.2.
The stock pays interest annually, matures in 10 years, and has a yield to maturity of 11.3 percent. What is the annual coupon amount? 15) A stock just paid a dividend of D0 = $2.3. The required rate of return is rs = 15.1%, and the constant growth rate is g = 3.5%. What is the current stock price? 17) ABC Company’s last dividend was $3. The dividend growth rate is expected to be constant at 8% for 3 years, after which dividends are expected to grow at a rate of 3% forever. The firm’s required return (rs) is 13%. What is its current stock price (i.e. solve for Po)? 27) You are planning a trip to London and plan on spending 15,056 pounds. How many dollars will this trip cost you in dollars if one U.S. dollar is worth 0.5916 pounds 24) ABC company’s market value of common stock is $200 million, preferred stock is $300 million, and debt is $500 million. Suppose that the cost of equity is 7%, the before-tax cost of debt is 3.4%, cost of preferred stock is 6%, and the tax rate is 25%. 22) A bond that sells for less than face value is called as: a)discount bond b)debenture c) perpetuity d)par value bond d)premium bond 21) The risk-free rate is 6%, the market risk premium is 10.5%, and the stock’s beta is 1.3. What is the cost of common stock?