Rossdale Company stock currently sells for $69.13 per share and has a beta of .89. The market risk premium is 7.20 percent and the risk-free rate is 2.93 percent annually. The company just paid a dividend of $3.61 per share, which it has pledged to increase at an annual rate of 3.30 percent indefinitely. What is your best estimate of the company’s cost of equity?

Kountry Kitchenhas a cost of equity of 11.3 percent, a pretax cost of debt of 5.9 percent, and the tax rate is 21 percent. If the company’s WACC is8.80 percent, what is its debt-equity ratio?

You have $14,800 to invest and would like to create a portfolio with an expected return of 10.05 percent. You can invest in Stock K with an expected return of 8.65 percent and Stock L with an expected return of 12.3 percent. How much will you invest in Stock K?

The Lumber Yard is considering adding a new product line that is expected to increase annual sales by $352,000 and expenses by $244,000. The project will require $153,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 9-year life of the project. The company has a marginal tax rate of 21 percent. What is the depreciation tax shield?

Sun Brite has a new pair of sunglasses it is evaluating. The company expects to sell 7,400 pairs of sunglasses at a price of $169 each and a variable cost of $121 each. The equipment necessary for the project will cost $385,000 and will be depreciated on a straight-line basis over the 7-year life of the project. Fixed costs are $350,000 per year and the tax rate is 21 percent. How sensitive is the operating cash flow to a $1 increase in variable costs per pairs of sunglasses?

Bad Company has a new 4-year project that will have annual sales of 8,700 units. The price per unit is $20.20 and the variable cost per unit is $7.95. The project will require fixed assets of $97,000, which will be depreciated on a 3-year MACRS schedule. The annual depreciation percentages are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. Fixed costs are $37,000 per year and the tax rate is 21 percent. What is the operating cash flow for Year 3?

When considering a switch from an all-cash credit policy to a net 30 credit policy all of the following should be considered except the:

A project with an initial cost of $56,000 is expected to provide annual cash flows of $14,300 over the 6-year life of the project. If the required return is 8.9 percent, what is the project’s profitability index?

Upton Umbrellas has a cost of equity of 12.9 percent, the YTM on the company’s bonds is 5.4 percent, and the tax rate is 21 percent. The company’s bonds sell for 104.5 percent of par. The debt has a book value of $447,000 and total assets have a book value of $965,000. If the market-to-book ratio is 3.13 times, what is the company’s WACC?

A portfolio consists of $14,800 in Stock M and $22,400 invested in Stock N. The expected return on these stocks is 8.70 percent and 12.30 percent, respectively. What is the expected return on the portfolio?