Question Details

What is Connors' current stock price 


1.	The Connors Company's last dividend was $1.00.  Its dividend growth rate is expected to be constant at 15% for 2 years, after which dividends are expected to grow at a rate of 10% forever.  Connors' required return (rs) is 12%.  What is Connors' current stock price ?
a)	$54.91
b)	$56.82
c)	$58.15
d)	$60.07
e)	$62.87
2.	 Assume that Mary Brown Inc. hired you as a consultant to help it estimate the cost of capital. You have been provided with the following data: D0 = $1.20; P0 = $40.00; and g = 7% (constant). Based on the DCF approach, what is Brown's cost of equity from retained earnings?
a)	10.06%
b)	10.21%
c)	10.37%
d)	10.54%
e)	10.68%

3.	 You were hired as a consultant to Locke Company, and you were provided with the following data:  Target capital structure:  40% debt, 10% preferred, and 50% common equity.  The interest rate on new debt is 7.5%, the yield on the preferred is 7.0%, the cost of retained earnings is 11.50%, and the tax rate is 40%.  The firm will not be issuing any new stock.  What is the firm's WACC?
a)	8.25%
b)	8.38%
c)	8.49%
d)	8.61%
e)	8.76%
4.  Now assume that the two companies merge and form a new company, Safeco/Risco Inc.  Moreover, the new company's market risk is an average of the pre-merger companies' market risks, and the merger has no impact on either the cash flows or the risks of projects X and Y.  Which of the following statements is CORRECT?
a)	Safeco/Risco's WACC, as a result of the merger, would be 10%.
b)	If evaluated using the correct post-merger WACC, Project X would have a negative NPV.
c)	After the merger, Safeco/Risco would have a corporate WACC of 11%. Therefore, it should reject Project X but accept Project Y
d)	If the firm evaluates these projects and all other projects at the new overall corporate WACC, it will become riskier over time.
e)	After the merger, Safeco/Risco should select Project Y but reject Project X.
5.  Blanchford Enterprises is considering a project that has the following cash flow data.  What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected. 
         Year:                  0         1          2          3   
         Cash flows:   -$1,000  $450     $450     $450
a)	16.20%
b)	16.65%
c)	17.10%
d)	17.55%
e)	18.00%




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