1. The following information relates to the Atlas Division of Global Enterprises:
Interest rate on debt capital: 8%
Cost of equity capital: 12%
Market value of debt capital: $45 million
Market value of equity capital: $75 million
Income tax rate: 30%
On the basis of this information, Atlas's weighted-average cost of capital is closest to (Do not round your intermediate calculations.):
3.65%.
8.58%.
9.60%.
10.50%.
None of these.
2. Assume that the average firm in your company’s industry is expected to grow at a constant rate of 3.70% and that its dividend yield is 4.70%. Your company is about as risky as the average firm in the industry, but it has just successfully completed some R&D work that leads you to expect that its earnings and dividends will grow at a rate of 47.00% this year and 57.00% the following year, after which growth should return to the 3.70% industry average. If the last dividend paid was $1.70, what is the estimated value per share of your firm’s stock?
$90.489
$81.014
$86.566
$79.314