Question1: You were hired as a consultant to Locke Company, and you were provided with the following data: Target capital structure: 40percent debt, 10percent preferred, and 50percent common equity. The interest rate on new debt is 7.5percent, the yield on the preferred is 7.0percent, the cost of retained earnings is 11.50 percent, and the tax rate is 40percent. The firm will not be issuing any new stock. What is the firm's WACC?
[A] 8.25%
[B] 8.61%
[C] 8.76%
[D] 8.38%
[E] 8.49%
Question2: Modular Systems In just paid dividend D0, and it is expecting both earnings and dividends to grow by 0% in Year 2, by 5% in Year 3, and at a rate of 10% in Year 4 and thereafter. The required return on Modular is 15%, and it sells at its equilibrium price, P0 = $49.87. Calculate the expected value of the next dividend, D1? It cannot be determined without more data
[A] $1.35
[B] $1.85
[C] $2.35
[D] $2.85
Question3: Reingaart Systems is expected to pay a $3.00 dividend at year end (D1 = $3.00), the dividend is expected to grow at a constant rate of 7% a year, and the common stock currently sells for $60 a share The before-tax cost of debt is 8%, and the tax rate is 40 percent. The target capital structure consists of 60% debt and 40% common equity. Calculate the company's WACC if all equity is from retained earnings?
[A] 7.45%
[B] 7.68%
[C] 7.84%
[D] 7.17%
[E] 7.31%
Question4: Sun State Mining In, an all-equity firm, is considering forming a new division that will increase the firm's assets by 50%. Sun State currently has a required return of 18 percent, U.S. Treasury bonds yield 7%, and the market risk premium is 5 percent. If Sun State wants to reduce its required return to 16%, what is the maximum beta coefficient the new division could have?
[A] 1.8
[B] 1.6
[C] 2.0
[D] 2.2
[E] 1.0
Question5: Club Auto Parts' last dividend, D0, was $0.50, and the company expects to experience no growth for the next 2 years. However, Club will grow at an annual rate of 5 percent in the third and fourth years, and, beginning with the fifth year, it should attain a 10% growth rate that it will sustain thereafter. Club has a required rate of return of 12 percent. What should be the price per share of Club stock at the end of the second year?
[A] $31.21
[B] $19.48
[C] $27.55
[D] $19.98
[E] $25.08