# Finance Problems

## Question

1. ABC just issued a dividend of \$3.40 on its common stock. The company is supposed to maintain a constant 4.5% growth rate in its dividend indefinitely. If the stock sells for \$53 a share, what is the cost of equity?
2. Cooper, Inc. has a beta of 1.15. If the risk free rate is 3.5% and the expected return to market is 11%, what is the company’s cost of equity?
3. Penny Blossoms has a target capital structure of 70% debt and 30% equity. Its cost of equity is 11%, cost of debt is 7%, and its tax rate is 35%.
a. What is Penny Blossom’s WACC?
b. What would happen to the WACC if it changed its capital structure to 50%/50% (no math just theory, explain your answer)?
4. Use the table below to calculate the payback of the project and the NPV of the project. For NPV use both a 10% and then a 20% WACC. Briefly explain whether you would take the project or not at each of the WACCs and if you would accept the project based on a payback requirement of 2 years.

Calculate NPV, Year, Cash Flow
0 -\$32,000
1 \$13,200
2 \$18,500
3 \$10,600
10% Required Return
20% Required Return

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