1. Calculating Cost of Equity [LO1] The Down and Out Co. just issued a dividend of $2.40 per share on
its common stock. The company is expected to maintain a constant 5.5 percent growth rate in its
dividends indefinitely. If the stock sells for $52 a share, what is the company's cost of equity?
2. Calculating Cost of Equity [LO1] The Up and Coming Corporation's common stock has a beta of 1.05.
If the risk-free rate is 5.3 percent and the expected return on the market is 12 percent, what is the
company's cost of equity capital?
3. Calculating Cost of Equity [LO1] Stock in Country Road Industries has a beta of .85. The market risk
premium is 8 percent, and T-bills are currently yielding 5 percent. The company's most recent dividend
was $1.60 per share, and dividends are expected to grow at a 6 percent annual rate indefinitely. If the
stock sells for $37 per share, what is your best estimate of the company's cost of equity?
4. Estimating the DCF Growth Rate [LO1] Suppose In a Found Ltd. just issued a dividend of $1.43 per
share on its common stock. The company paid dividends of $1.05, $1.12, $1.19, and $1.30 per share in
the last four years. If the stock currently sells for $45, what is your best estimate of the company's cost of
equity capital using the arithmetic average growth rate in dividends? What if you use the geometric
average growth rate?
5. Calculating Cost of Preferred Stock [LO1] Holdup Bank has an issue of preferred stock with a $6
stated dividend that just sold for $96 per share. What is the bank's cost of preferred stock?