The Graber Corporation’s common stock has a beta of 1.5. If the risk-free rate i

Question

The Graber Corporation’s common stock has a beta of 1.5. If the risk-free rate is 4.6 percent and the expected return on the market is 12 percent, what is the company’s cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

The Absolute Zero Co. just issued a dividend of $3.20 per share on its common stock. The company is expected to maintain a constant 6.6 percent growth rate in its dividends indefinitely.

If the stock sells for $64 a share, what is the company’s cost of equity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Titan Mining Corporation has 8.2 million shares of common stock outstanding, 260,000 shares of 4 percent preferred stock outstanding, and 140,000 7 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $30 per share and has a beta of 1.10, the preferred stock currently sells for $80 per share, and the bonds have 10 years to maturity and sell for 110 percent of par. The market risk premium is 7 percent, T-bills are yielding 3 percent, and the company’s tax rate is 38 percent.

What is the firm’s market value capital structure? (Do not round intermediate calculations. Round your answers to 4 decimal places, e.g., 32.1616.)

If the company is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

The Graber Corporation’s common stock has a beta of 1.5. If the risk-free rate is 4.6 percent and the expected return on the market is 12 percent, what is the company’s cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

1)

Cost of equity using CAPM model = risk free rate + beta ( market return - risk free rate)

Cost of equity = 0.046 + 1.5 ( 0.12 - 0.046)

Cost of equity = 0.157 or 15.7%

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