8. Compute the expected return given these three economic states, their probabil

Question

8. Compute the expected return given these three economic states, their probabilities, and the potential returns EconomicState-Probability Fast Growth Slow Growth 0.50 Recession Return 50% 896 -10% 0.10 0.40 A. 6.8% B. 12.8% C. 11.0% D. 5.8% E. 5.0% 9. IVY has preferred stock selling for $98 that pays an $11 annual dividend. What would be IVY's cost of preferred stock? A. 8.16% B. 9.09% C. 7.14% D. 12.26% E. 11.22% 10. FlavR Co stock has a beta of 1.5, the current risk-free rate is 4 percent, and the market return is 9 percent. What is FlavR Co's cost of equity? A. 14.3% B. 12.5% C. 16.0% D. 15.0% E. 11.5% 11. Suppose that TipsNToes, Inc. capital structure has 40 percent common stock and 60 percent debt. Its before-tax cost of debt is 9 percent, while its cost of common stock is 18 percent. If the tax rate is 34 percent, what is TipsNToes' WACC? A. 10.05% B. 9.56% C. 10.59% D. 17.75% E. 10.76% 12·IT Inc. paid a $2.30 common stock dividend last year. The company's dividend growth rate is 3 percent and the stock is currently selling for $58. What is this company's cost of capital? A. 8.98% B. 7.08% C. 6.89% D. 8.92% E. 794% 13. Compute the IRR for the project shown below Time: Cash Flow -500 75 400 300 75 200 A. 31.11% B. 13.52% C. 17.10% D. 8.35% E. 2.86%

Explanation / Answer

9)

Cost of preferred stock (Rp) Annual dividend÷Stock price Here, Annual dividend $                                             11.00 Preferred stock price $                                             98.00 Cost of preferred stock (Rp) 11.22% $11÷$98

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