1. Grant Corporation's stock is selling for $40 in the market. The company's beta is 0.8, the market risk premium is 6 percent, and the risk-free rate is 9 percent. The dividend just paid was $2, and dividends are expected to grow at a constant rate. What is the growth rate for this stock?
a. 5.52% b. 5.00% c. 13.80% d. 8.80% e. 8.38%
2. Rollins Corporation is estimating its WACC. Its target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. Its bonds have a 12 percent coupon rate paid semiannually, a current maturity of 20 years, and a price of $1,000. The firm could sell preferred stock dividends at $12 with a price of $100.
Rollins's beta is 1.2, the risk-free rate is 11 percent, and the market risk premium is 5 percent. Rollins is a constant-growth firm, which expects a dividend next period of $2.16, sells for $27.00 per share, and has a growth rate of 8 percent. The firm's marginal tax rate is 40 percent.
3. What is Rollins's component cost of debt?
a. 10.0% b. 9.1% c. 8.6% d. 8.0% e. 7.2%
4. What is Rollins’s cost of common stock?
a. 3.8% b. 16.0% c. 16.5% d. 17.0%