financial management homework help please?

i have 3 problems i need to get done for my financial management class and i have no idea where to start. here is all the info if anybody can help me in any way it would be greatly appreciated.


a)market rate is 11%

b)US treasury rate is 7.0%

c)dividend is $4.00

d)company beta is 1.5

e)tax rate is 40%

f)cost of interest on a 15 year fixed bond is 10%

g)preferred stock outstanding is a 6% $100 series A

h)all stock and bonds sold at par with no underwriters fee

i)Wi=percentage of debt is 40%

j)Wp=percentage of preferred stock is 20%

k)Ws=percentage of equity is 40%

l)Po=common stock price per share of $50

m)g=growth percentage of 5%

n)the market price of the common stock is $50

and i need to calculate 1) the required rate of return in a percentage using the capital asset pricing model, 2) value of the stock using gordon constant growth model, and 3) weighted average cost of capital

again if anyone has any idea what i need to do, or even just start me off on it i would appreciate it very, very much

2 Answers

  • J
    Lv 4
    1 decade ago
    Favorite Answer

    1) use capm, the formula is reqired return of equity=risk free rate + (market return-risk free rate) * Beta

    in this example the risk free rate is the US treasury rate given

    2) constant growth or Gordon model

    Price of stock today P0= [(dividend today D0)*(1+growth rate)] / (required return - growth rate)

    3) use WACC= [wi*ri*(1-Tax rate) ]+ (wp*rp) + (ws*rs)

    where ri=10%


    rs= answer from #1 above

  • 1 decade ago

    Start with reading your text book. There should be an example.

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