Q-No. 04)
Longstre. Communications Services Ltd. has the following capital structure: debt = 25%, preferred
stock -15% and common stock = 60%. The company falls under 40% tax bracket and investors expect earnings
and dividend to grow at a constant rate of 6% in the foreseeable future. The company has currently paid a
dividend of $ 3.70 (D.=3.70) and its stock is currently selling at a market price of $ 60 per share. The following
terms would apply to new security offerings:
Preferred: new preferred stock could be sold to the public at a price of $ 100 per share, with a dividend
of $ 9. Floatation cost of $ 5 would be incurred on new issue.
Debt: debentures could be sold an interest rate of 9%.
Common: new common equity will be raised only by retaining earnings.
Required: 1. Find the component cost of debt, preferred stock and common stock.
2. What is the WACC?
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Answer:
SECTION -A
1.
A rational number is equivalent to
a)
15
17
b)
25
25
27
10
14
10
27
2.
The zero of the polynomial p(x) = 2x+5 is
a) 2
b)
2
5
Nolor con
c)
5
3.
The polynomial of type ax'+bx+c, when a=0
Linear
b) Quadratic
c) Cubic
Biquadratic
d)
4.
Through which of the following point, the graph of y = -x passes?
(1, 1)
b) (0,1)
c) 61.1
(0,0)
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