Question -
1. Stock Valuation: The XYZ Company just paid a dividend of D0 = $1.25 per share, and that dividend is expected to grow at a constant rate of 6.00% for the first 2 years and then 3% per year from year 3 till forever. The company's beta is 1.5, the market risk premium is 5.30%, and the risk-free rate is 4.00%. What is the company's current stock price? What is expected stock price in 4, 7, and 10 years, respectively?
2. Capital Budgeting: Alpha Beta Co. (ABC) is trying to determine the initial outlay of a project. ABC estimates that the project will generate a $25,000 net cash flow at the end of each year for 20 years. The project's cost of capital is 12%, and the project has a 10% internal rate of return. Which one among the possible initial outlay amounts listed below is consistent with the information provided?
3. Risk and Return:
(1) ABC Inc.'s stock has a 30% chance of producing a 10% return, a 40% chance of producing a 20% return, and a 30% chance of producing a -5% return. What is the firm's expected rate of return?
(2) Calculate the required rate of return for ABC Inc., assuming that (1) investors expect a 3.0% rate of inflation in the future, (2) the real risk-free rate is 1.0%, (3) the market risk premium is 5.0%, (4) the firm has a beta of 1.40, and (5) its realized rate of return has averaged 12.0% over the last 10 years.
4. WACC: Fresh, Inc.'s target capital structure is 60% debt and 40% common stock. The company's outstanding annual coupon bonds have a yield-to-maturity of 10%. The company's common stock sells for $20 per share. D1 = $2.00 and g = 0.04. The tax rate is 40%. What is the company's WACC?
Attachment:- Exam review & guidance.rar