1.A $100 par, 8 percent preferred stock is currently selling for $80. What is the cost of preferred equity?

A)   10.0%.

B)   8.0%.

C)   9.0%.

D)   10.8%.

2.The expected dividend one year from today is $2.50 for a share of stock priced at $22.50. The long-term growth in dividends is projected at 8 percent. The cost of common equity is closest to:

A)   15.6%.

B)   16.2%.

C)   19.1%.

D)   18.0%.

3.The cost of preferred stock is equal to:

A)   the preferred stock dividend divided by its par value.

B)   the preferred stock dividend divided by the market price.

C)   preferred stock dividend multiplied by the market price.

D)   [(1-tax rate) times the preferred stock dividend] divided by the market price.

4.The expected annual dividend one year from today is $2.50 for a share of stock priced at $25. What is the cost of equity if the constant long-term growth in dividends is projected to be 8 percent?

A)   15%.

B)   16%.

C)   18%.

D)   19%.

5.A company has $5 million in debt outstanding with a coupon rate of 12 percent. Currently the YTM on these bonds is 14 percent. If the tax rate is 40 percent, what is the after tax cost of debt?

A)   8.4%.

B)   5.6%.

C)   4.8%.

D)   7.2%.