1. McCoy paid a one-time special dividend of $3.40 on October 18, 2010. Suppose

Question

1. McCoy paid a one-time special dividend of $3.40 on October 18, 2010. Suppose you bought McCoy stock for $48 on July 18, 2010, ans sold it immediately after the dividend was paid for $63.48. What is your capital gain yield from holding McCoy?

A. 3.93%

B. 32.25%

C. 39.23%

D. 5.9%

2. Verano Inc. has two business division-a software product line and a waste water clean -up product line. The software business has cost of equity capital of 9% and the waste water clean up business has a cost of equoty capital of 5%. Verano has 50% of its revenue from software and the rest from the waste business. Verano is considering a purchase of another company in the waste water business using equity financing. What is the appropriate cost of capital to evaluate the business?

A. 5%

B. 7%

C. 8%

D. 9%

Explanation / Answer

1)Capital Gain yield (in absolute terms ) =(Sale price- Acquisition price) /Acquisition price

=( 63.48 -48) /48 =32.25% So the Answer is B

2) Calculating the weighted average cost of capital giving equal weights to both based on revenue

(9*1) + (5*1) = 14 /2= 7% So the Answer is B

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