1. Super Solutions Inc. is a constant growth firm, which just paid a dividend of $3.00, sells for $33.00 per share, and has a growth rate of 6 percent. Which of the following is the cost of retained earnings using the discounted cash flow (DCF) approach? (Round off the answer to two decimal places.)
a) 12.40 percent
b) 16.25 percent
c) 15.64 percent
d) 13.35 percent
2. The expected rate of return of an investment _____.
a) is the median value of the probability distribution of possible returns
b) equals the required rate of return for the investment
c) is the mean value of the probability distribution of possible returns
d) equals the required rate of return for the investment
3. Which of the following is a capital component for the purpose of calculating the weighted average cost of capital in capital budgeting?
a) The after-tax cost of long-term debt
b) The after-tax cost of preferred stock
c) The after-tax cost of new equity