# 2024 – QUESTION 1 The common stock of Wetmore Industries is valued at 63 7 a share The company increases their dividend

Test: Prep 6 – 2024

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QUESTION 2

ABC’s stock has a required rate of return of 17.2%, and it sells for \$34 per share.  The dividend is expected to grow at a constant rate of 7.2% per year.  What is the expected year-end dividend, D1?

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Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer box.

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Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer box.

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QUESTION 4

ABC’s last dividend was \$5.2.  The dividend growth rate is expected to be constant at 31% for 3 years, after which dividends are expected to grow at a rate of 5% forever.  If the firm’s required return (rs) is 14%, what is its current stock price (i.e. solve for Po)?

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Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer box.

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QUESTION 5

ABC just paid a dividend of D0 = \$4.7.  Analysts expect the company’s dividend to grow by 31% this year, by 25% in Year 2, and at a constant rate of 5% in Year 3 and thereafter.  The required return on this stock is 16%.  What is the best estimate of the stock’s current market value?

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Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer box.

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QUESTION 6

A stock’s next dividend is expected to be \$1.2.  The required rate of return on stock is 16.7%, and the expected constant growth rate is 2.8%.  What is the stock’s current price?

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Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer box.

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QUESTION 7

A stock just paid a dividend of \$0.6.  The required rate of return is 18.4%, and the constant growth rate is 6.6%.  What is the current stock price?

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Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer box.

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Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer box.

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QUESTION 9

ABC is expected to pay a dividend of \$3 per share at the end of the year.  The stock sells for \$51 per share, and its required rate of return is 12.8%.  The dividend is expected to grow at some constant rate, g, forever.  What is the growth rate (i.e. solve for g)?

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QUESTION 10

ABC Enterprises’ stock is expected to pay a dividend of \$1.9 per share.  The dividend is projected to increase at a constant rate of 5.2% per year.  The required rate of return on the stock is 17.6%.  What is the stock’s expected price 3 years from today (i.e. solve for P3)?

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Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer box.

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QUESTION 11

If D1 = \$5.1, g (which is constant) = 2%, and P0 = \$26.52, what is the stock’s expected dividend yield for the coming year?

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QUESTION 12

If D1 = \$6.1, g (which is constant) = 2.9%, and P0 = \$76.4, what is the stock’s expected total return for the coming year?

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QUESTION 13

ABC Enterprises’ stock is currently selling for \$68.4 per share.  The dividend is projected to increase at a constant rate of 5.8% 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)?

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Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer box.

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QUESTION 14

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?

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Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer box.

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QUESTION 15

A stock is expected to pay a dividend of \$1.8 at the end of the year.  The required rate of return is rs = 11.7%, and the expected constant growth rate is g = 6.9%.  What is the stock’s current price?

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Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer box.

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QUESTION 16

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?

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Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer box.

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QUESTION 17

A stock just paid a dividend of D0 = \$1.1.  The required rate of return is rs = 14.2%, and the constant growth rate is g = 5.6%.  What is the current stock price?

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Note: Enter your answer rounded off to two decimal points. Do not enter \$ or comma in the answer box. For example, if your answer is \$12.345 then enter as 12.35 in the answer box.

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QUESTION 18

If last dividend = \$4.3, g = 8.4%, and P0 = \$75, what is the stock’s expected total return for the coming year?

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QUESTION 19

ABC Industries will pay a dividend of \$2 next year on their common stock. The company predicts that the dividend will increase by 7 percent each year indefinitely. What is the dividend yield if the stock is selling for \$29 a share?

Enter your answer in percentages rounded off to two decimal points. DO not enter % in the answer box.

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QUESTION 20

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?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

QUESTION 21

ABC, Inc., has 819 shares of common stock outstanding at a price of \$77 a share. They also have 375 shares of preferred stock outstanding at a price of \$93 a share. There are 409, 8 percent bonds outstanding that are priced at \$47. The bonds mature in 16 years and pay interest semiannually.

Enter your answer as a percentage rounded off to two decimal points. Do not enter % in the answer box.

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QUESTION 22

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?

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QUESTION 23

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?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

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QUESTION 24

ABC Inc.’s perpetual preferred stock sells for \$62.8 per share, and it pays an \$8.5 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?

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QUESTION 25

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.

QUESTION 26

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?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

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QUESTION 27

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’stax rate is 40%.  What is the after-tax cost of debt?

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QUESTION 28

The before-tax cost of debt is 9 percent. What is the after-tax cost of debt if the tax rate is 48 percent?

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QUESTION 29

ABC Industries will pay a dividend of \$1 next year on their common stock. The company predicts that the dividend will increase by 4 percent each year indefinitely. What is the firm’s cost of equity if the stock is selling for \$39 a share?

Enter your answer in percentages rounded off to two decimal points. DO not enter % in the answer box.

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QUESTION 30

If the market value of debt is \$160,199, market value of preferred stock is \$83,141, and market value of common equity is 257,544, what is the weight of preferred stock?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

QUESTION 31

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?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

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QUESTION 32

The ABC Company has a cost of equity of 16.8 percent, a pre-tax cost of debt of 7.9 percent, and a tax rate of 30 percent. What is the firm’s weighted average cost of capital if the proportion of debt is 58.4%?

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