Burnham Brothers Inc. has no retained earnings since it has always paid out all of its earnings as dividends. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC? The market risk premium declines. The flotation costs associated with issuing new common stock increase. The company's beta increases. Expected inflation increases. The flotation costs associated with issuing preferred stock increase.

Is the following sentence true or false? Please explain.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             The cost of new equity (re) could possibly be lower than the cost of reinvested earnings (rs) if the market risk premium, risk-free rate, and the company's beta all decline by a sufficiently large amount.

Suppose that a firm with a stock price of $80 just announced that it expects to pay a $100 per share liquidating dividend in 1 year, although the exact amount of the dividend depends on the performance of the company this year. Assume that the CAPM is a good description of stock price returns and that the stock’s beta is 1.5, the market’s expected return is 12%, and the risk-free rate is 5%. 1) Is the stock priced correctly now? 2) What is the alpha of the stock? 3) What would you expect to happen to the stock price in an efficient market after the announcement? Give typing answer with explanation and conclusion

Stormy Weather has no attractive investment opportunities. Its return on equity equals the discount rate, which is 5%. Its expected earnings this year are $2 per share. Complete the following table. (Leave no cells blank. Enter a zero, wherever necessary. Do not round intermediate calculations. Round growth rate to two decimal places.)   Plowback Ratio Growth Stock PE Ratio 0 0% 40.00 20.00 .20 1.00%     .70 3.50