05_MoF_Do1_2016_FS

Description:

Answer all questions and then press submit. We will discuss the solutions together.


Deluxe Company expects to pay a dividend of $2 per share at the end of year-1, $3 per share at the end of year-2 and then be sold for $32 per share. If the required rate on the stock is 15%, what is the current value of the stock closest to? 






Cost of capital is the same as cost of equity for firms: 






The market value of Charcoal Corporation's common stock is $20 million, and the market value of its risk-free debt is $5 million. The beta of the company's common stock is 1.25, and the market risk premium is 8%. If the Treasury bill rate is 5%, what is the company's cost of capital closest to? (Assume no taxes.) 






The historical data for the past three years for the market portfolio are 10%, 10% and 16%. If the risk-free rate of return is 4%, what is the market risk premium closest to?