What is the cost of common stock if a firm\'s beta is 1.5, the risk-free rate is

Question

What is the cost of common stock if a firm's beta is 1.5, the risk-free rate is 3%, and the required return on the market is 12%? 18.0% 9.0% 12.0% 16.5% If the return on a capital budgeting project exceeds the WACC, then; the value of the firm should increase the value of the firm should decrease the value of the firm should not change CAPM > beta The cost of debt is adjusted to account for the tax deductibility of interest by; a- multiplying by (1 - marginal tax rate) multiplying by (1 + marginal tax rate) multiplying by the marginal tax rate d- subtracting the marginal tax rate What is the cost of preferred stock if the market's return is 12%, the preferred dividend is $3 and the current price of the preferred stock is $52.50 per share? 22.9% 5.71% 17.71% 12.0%| What is the cost of common stock if the firm's current stock price is $33.25 a share, the growth rate for dividends has historically been 4% and the most recent dividend paid was $2.00? 10.26% 6.26% 4.0% 10.02%

Explanation / Answer

Ans11]Option-D:- 16.5%

Explanation:-

According to CAPM,

Re = Rf + (Rm-Rf)*Be

Re = 3 +(12-3)*1.5

Re = 16.5%

Ans-12]Option-A:-the value of the firm should increase

Ans-13]Option-A:-multiplying by (1-marginal tax rate)

Ans-14]Option-B:- 5.71%

Explanation:-

P0 = Dividend/Kp

52.50 = 3/kp

Kp = 0.0571

Kp = 5.71%

Ans-15]Option-A:- 10.26%

Explanation:-

We know,

Po = D1/(Re-g)

33.25 =(2*1.04)/(Re-0.04)

Re-0.04 = 0.0626

Re = 0.1026

Re = 10.26%

Ans11]Option-D:- 16.5%

Explanation:-

According to CAPM,

Re = Rf + (Rm-Rf)*Be

Re = 3 +(12-3)*1.5

Re = 16.5%

Ans-12]Option-A:-the value of the firm should increase

Ans-13]Option-A:-multiplying by (1-marginal tax rate)

Ans-14]Option-B:- 5.71%

Explanation:-

P0 = Dividend/Kp

52.50 = 3/kp

Kp = 0.0571

Kp = 5.71%

Ans-15]Option-A:- 10.26%

Explanation:-

We know,

Po = D1/(Re-g)

33.25 =(2*1.04)/(Re-0.04)

Re-0.04 = 0.0626

Re = 0.1026

Re = 10.26%

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