1. The required return on equity for a levered firm is 10.60%. The debt to equity ratio is ½ the tax rate is 40%, the pre-tax cost of debt is 8%. Find the cost of capital if this firm were financed entirely with equity.
2. SRS, Inc. just paid an annual dividend of $2.68 last month. The required return is 14.1 percent and the dividend growth rate is expected to be constant at 2.2 percent. What is the expected value of this stock ten years from now?
3. Last week, Onboard Co. has announced that the next two annual dividends will be in the amount of $2.44 and $4.26, respectively. After that, the dividends will increase by 2 percent annually. The required return on this stock is 14.24 percent. What is the current price per share? (Hint: draw this out on a timeline.)