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QUESTION 1.

Chrysler common stock has a beta of 1.24. If the riskfree rate is 4.06% and the expected return on
the market is 13.78%. What is the firm's cost of equity?

QUESTION 2.

Global Equity Management Company must determine the cost of capital for a new stock issue. A
dividend of $4.03 was just paid on its common stock outstanding. The company expects to maintain
a constant 5.42% growth in dividends indefinitely. With a current share price of $40.16 and floating
costs of 6.85% , what is the firm's cost of equity?

QUESTION 3.

Kellogs common stock has a beta of 1.28. If the riskfree rate is 5.93% and the expected return on
the market is 13.34%. What is the firm's cost of equity?

QUESTION 4.

The Pacific Mutual Fund treasurer needs to determine the correct cost of equity for a new project.
The equity beta for Pacific Mutual Fund is 1.31 and the new project, which will also be 100%
equity financed, will have a beta of 0.67. The market risk premium is 13.507% and the risk-free
rate is 5.107%. What is the appropriate cost of equity for the project?

QUESTION 5.
Federal Bank common stock has a beta of 1.26. If the riskfree rate is 4.91% and the expected return
on the market is 13.57%. What is the firm's cost of equity?

QUESTION 6.

Managers at Nike plan to issue new stock to finance a capital investment. Floating costs will
amount to 5.008% of the market price of shares. For shares outstanding, the next dividend will be
$3.09 per share and the current share price is $35.03. Dividends grow at a steady rate of 3.86% per
year. What is the cost of external equity for the project?

QUESTION 7.

Managers at General Electric must determine the cost of capital for a new project. They plan to use
internally generated equity to finance the project. The next dividend will be $2.37 per share and the
current share price is $30.88. Dividends grow at a steady rate of 2.42% per share. What is the cost
of internal equity for the project?

QUESTION 8.
The next annual dividend for Iowa National Bank stock will be $3.72 per share. The company
expects to maintain a constant 2.01% growth in dividends indefinitely. With a current share price of
$44.77, what is the firm's cost of equity?

QUESTION 9.
Stock in Boston Fund Management has a beta of 0.66. The market risk premium is 13.471% and
Treasury bills yield 5.283%. What is your best estimate of the cost of equity capital for Boston
Fund Management?

QUESTION 10.

Nike just paid an annual dividend of $2.17 per share on its common growth stock. The company
expects to maintain a constant 2.45% growth in dividends indefinitely. With a current share price of
$43.4, what is the firm's cost of equity?

QUESTION 11.

Managers at IBM must determine the cost of capital for a new project. They plan to use internally
generated equity to finance the project. The next dividend will be $2.65 per share and the current
share price is $38.66. Dividends grow at a steady rate of 2.9% per share. What is the cost of internal
equity for the project?

QUESTION 12.
Managers at Bank South must determine the cost of capital for a new project. They plan to use
internally generated equity to finance the project. The next dividend will be $3.63 per share and the
current share price is $35.85. Dividends grow at a steady rate of 3.43% per share. What is the cost
of internal equity for the project?