Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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1. Frostfell Airlines is expected to pay an upcoming dividend of P3.29. The company's dividend is expected to grow at a steady, constant rate of 5% well into the future. Frostfell currently has 1,600,000 shares of common stock outstanding. If the required rate of return for Frostfell is 12%, what is the best estimate for the current price of Frostfell's common stock?

P65.80
P62.51
P27.41
P47.00
 
2. Assume that you are the financial staff of Vanderheiden Inc., and you have collected the following data:  the yield on the company’s outstanding bonds is 7.75%, its tax rate is 40%, the next expected dividend is P0.65 a share, the dividend is expected to grow at a constant rate of 6.00% a year, the price of the stock is P15.00 per share, the flotation cost for selling new shares is F = 10%, and the target capital structure is 45% debt and 55% common equity.  What is the firm's WACC, assuming it must issue new stock to finance its capital budget?

6.89%
7.64%
7.26%
8.04%
 
3. What happens to expected portfolio return if the portfolio beta increases from 1.0 to 2.0, the risk-free rate decreases from 5% to 4%, and the market risk premium remains at 8%?

It remains unchanged.
It increases from 13% to 20%.
It increases from 12% to 19%.
It increases from 13% to 16%.
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