Busıness Fınance II (ENG) — Ünite Sınavı

XYZ Corp. distributes 50% of its net income as dividends. The firm’s ROE is 20% and last year stockholders received $1 dividends per share. Currently the stock sells at $20. What is the cost of equity for XYZ Corp?

1. The cost of equity is the return a company requires to decide if an investment meets capital return requirements.
2. A firm uses cost of equity to assess the relative attractiveness of investments
3. A business can raise equity capital either through a common stock issue or a preferred stock issue.

Which of the statements above is/are true for cost of equity?

A corporation borrows $100,000 as a bank loan at an annual interest rate of 5%. The company pays 30% corporate tax rate. What is the after-tax rate of borrowing for this corporation?

X Corp.'s capital structure consist of %40 long-term dept and %60 common equity. The interest rate on the corp.'s long-term dept is %12 and common shareholders are paid %18 on equity capital. If the tax rate of the corp. is %25, what would be the WACC for the corp.?

XYZ Corp. has a historical beta of 0.9 and the expected market return is 8%, whereas the risk-free rate is 2%. What is the required return of the stockholders of XYZ?