FIN 380 Exam 2 Supplemental Homework Problems
Chapter 8
Supplemental Homework/Practice Problems
Solutions may be found on the FIN 380 site of i-Tunes U near the bottom of the file list under "Supplemental Homework - Chapter 8"
8-1. AEH, Inc. just paid a $1.00 dividend and is expected to pay a $1.06 dividend next year. What is AEH’s capital gains yield (growth rate, “g”)?
8-2. XYZ, Inc. stock sells for $50.00 and is expected to sell for $54.50 next year. What is XYZ’s capital gains yield (Hint: the percentage change in stock price is the same as the growth rate, “g”)?
8-3. PDQ, Inc. stock current sells for $15.00 per share. The company is expected to pay a $1.50 dividend and sell for $17.25 one year from now.
a. What is PDQ’s dividend yield?
b. What is PDQ’s capital gains yield?
c. What is PDQ’s total expected rate of return?
8-4. AMB, Inc.’s common stock is expected to pay a $2.60 dividend in the coming year. If investors require a 14% return and the growth rate in dividends is expected to be 9%, what is the price of common stock?
8-5 A share of preferred stock pays a $2 annual dividend. It is priced at $40 per share. What is the required rate of return on the preferred stock?
8-6 What is the price of preferred stock paying a $4 annual dividend if investors require a 14% rate of return on the stock?
Chapter 14
Supplemental Homework/Practice Problems
Solutions may be found on the FIN 380 site of i-Tunes U near the bottom of the file list under "Supplemental Homework - Chapter 14"
14-1. ABC, Inc. has a pre-tax cost of debt of 6.4 percent, a cost of common equity of 12.4 percent, and a cost of preferred stock of 9.2 percent. The company has 1,800 bonds outstanding that are selling for $950 each. The company also has 16,000 shares of common stock outstanding that are priced at $45 a share. There are 24,000 shares of preferred stock outstanding priced at $25 a share. ABC, Inc.’s tax rate is 34 percent.
a. Compute the weights.
b. Compute ABC’s
Supplemental Homework/Practice Problems
Solutions may be found on the FIN 380 site of i-Tunes U near the bottom of the file list under "Supplemental Homework - Chapter 8"
8-1. AEH, Inc. just paid a $1.00 dividend and is expected to pay a $1.06 dividend next year. What is AEH’s capital gains yield (growth rate, “g”)?
8-2. XYZ, Inc. stock sells for $50.00 and is expected to sell for $54.50 next year. What is XYZ’s capital gains yield (Hint: the percentage change in stock price is the same as the growth rate, “g”)?
8-3. PDQ, Inc. stock current sells for $15.00 per share. The company is expected to pay a $1.50 dividend and sell for $17.25 one year from now.
a. What is PDQ’s dividend yield?
b. What is PDQ’s capital gains yield?
c. What is PDQ’s total expected rate of return?
8-4. AMB, Inc.’s common stock is expected to pay a $2.60 dividend in the coming year. If investors require a 14% return and the growth rate in dividends is expected to be 9%, what is the price of common stock?
8-5 A share of preferred stock pays a $2 annual dividend. It is priced at $40 per share. What is the required rate of return on the preferred stock?
8-6 What is the price of preferred stock paying a $4 annual dividend if investors require a 14% rate of return on the stock?
Chapter 14
Supplemental Homework/Practice Problems
Solutions may be found on the FIN 380 site of i-Tunes U near the bottom of the file list under "Supplemental Homework - Chapter 14"
14-1. ABC, Inc. has a pre-tax cost of debt of 6.4 percent, a cost of common equity of 12.4 percent, and a cost of preferred stock of 9.2 percent. The company has 1,800 bonds outstanding that are selling for $950 each. The company also has 16,000 shares of common stock outstanding that are priced at $45 a share. There are 24,000 shares of preferred stock outstanding priced at $25 a share. ABC, Inc.’s tax rate is 34 percent.
a. Compute the weights.
b. Compute ABC’s