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Required and Expected Rate of Return

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6) Albright Motors is expected to pay a year end dividend of $3 a share (D1=$3). The stock currrently sells for $30 a share. The required (and expected) rate of return on the stock is 16%.

If the dividend is expected to grow at a constant rate, g, what is g?

7) You work for smith company as a consultant. Kroncke target capital structure is 30% debt, 20% preferred, and 50% common equity. The after tax cost of debt is 8%, the cost of preferred is 6.5%, and the cost of retained earnings is 13.25%. The firm will not be issuing any new stock. What is its WACC?

-10.07%

-10.37%

-9.48%

-10.68%

-10.325%

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The solution analyzes Albright Motors as they are expected to pay a year end dividend share

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