1. Explain What is the correct way to annualize an interest rate in financial decisions?
Explain with an example
2. What is the current price of a stock that just paid dividends of $3 per share, if you require 15% return on your investment? Assume dividends will grow at a rate of 5% a year. Compute the price of the stock if the $3 dividend was paid in perpetuity
3. (Cost of equity) The cost of capital is 15%, the before-tax cost of debt is 9%, and the marginal income tax rate is 40%. The market value of debt is $50 million and the market value of equity is $50 million. What is the cost of equity
9.00%
10.00%
11.50%
12.60%
13.25%
14.16%
15.00%
24.60%
25.24%