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What is the required return? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Q-6 (Set 2)
6. The Starr Co. just paid a dividend of $1.55 per share on its stock. The
dividends are expected to grow at a constant rate of 6 percent per year,
indefinitely. Investors require a return of 14 percent on the stock.
What is the current price? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g., 32.16.)
What will the price be in three years? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
What will the price be in 7 years? (Do not round intermediate calculations
and round your answer to 2 decimal places, e.g., 32.16.)
7. Zoom stock has a beta of 1.46. The risk-free rate of return is 3.07
percent and the market rate of return is 11.81 percent. What is the amount
of the risk premium on Zoom stock?
8. The risk premium for an individual security is computed by:
9. The risk-free rate of return is 3.68 percent and the market risk premium
is 7.84 percent. What is the expected rate of return on a stock with a beta
of 1.32?
10. Mullineaux Corporation has a target capital structure of 70 percent
common stock and 30 percent debt. Its cost of equity is 18 percent, and the
cost of debt is 6 percent. The relevant tax rate is 30 percent.
What is the company’s WACC? (Do not round intermediate calculations
and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)