Southern Home Cookin\' just paid its annual dividend of $0.65 a share. The stock
ID: 2646821 • Letter: S
Question
Southern Home Cookin' just paid its annual dividend of $0.65 a share. The stock has a market price of $13 and a beta of 1.12. The return on the U.S. Treasury bill is 2.5 percent and the market risk premium is 6.8 percent. What is the cost of equity?
The Corner Bakery has a bond issue outstanding that matures in 7 years. The bonds pay interest semi-annually. Currently, the bonds are quoted at 101.4 percent of face value and carry a 9 percent coupon. What is the firm's aftertax cost of debt if the tax rate is 30 percent?
9.98 percent 10.04 percent 10.12 percent 10.37 percent 10.45 percentExplanation / Answer
Answer is 10.12
Ans A
According to CAPM ra = rf + Ba (rm-rf)
rm-rf = market risk premium
rf = risk free rate
= 2.5 + 1.12*6.8
Ans B 5.45 percent
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