1. A firm has a perpetual stock that pays quarterly dividend of $4.50. It current price is $ 93,50. What is the rate of return (r) and the effective annual rate (EAR)?
A r=19.25, EAR=22.33
B r=19.25, EAR=20.68
C r=22.33, EAR= 20.68
D r=19.25, EAR=19.44
E r=17.90, EAR=20.68
2. Merrill Lynch’s cost of retained earnings is 12%, cost of preferred stock is 47% and its cost of debt is 10%. The optimal capital structure is 20% common stock, 50% preferred stock and 30% of debt. The firm will not be issuing any new stock and the marginal tax rate is 30%. What is the weighted average cost of capital for Merrill Lynch?
A 28.90%
B 28.00%
C 29.40%
D 26.80%
E 26.88%