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Q 8

A stock pays an annual dividend of $2.50 and that dividend is not expected to change. Similar stocks pay a return of 10%. What is P0? (Show workings)

Q9

A stock has just paid a dividend and has declared an annual dividend of $3.00 to be paid one year from today. The dividend is expected to grow at a 5% annual rate. The return on equity for similar stocks is 14%. What is P0? (Show workings)

Q10

What is β and why is it important to investors and issuers of stock? Describe the behavior of stocks with βs of greater than one, less than one, and less than zero.

Q11

A company has 30 million shares outstanding trading for $8 per share. It also has $90 million in outstanding debt. If its equity cost of capital is 15%, and its debt cost of capital is 9%, and its effective corporate tax rate is 40%, what is its weighted average cost of capital? (Show workings)

Q12

What is the difference between capital structure and capital budgeting? Explain and give an example of a capital structure decision and an example of a capital budgeting decision.

Q13

(TCO E) A company has the opportunity to do any of the projects for which the net cash flows per year are shown below. The company has a cost of capital of 15%. Which should the company do and why? You must use at least two capital budgeting methods. Show your work.

Year	A	B	C
0	-300	-100	-300
1	100	50	100
2	100	100	100
3	100	100	100
4	100	100	100
5	100	100	100
6	100	100	100
7	100	200	0