1. A firm is worth $1,400, has a 35% tax rate, total debt of $600, an unlevered return of 15%, and a cost of debt of 7%. What is the cost of equity?
a. 18.41%
b. 16.67%
c. 18.90%
d. 12.07%
e. 17.93%
2. The Johnson Company just paid an annual dividend of $1.80. How much would you be willing to pay for one share of Johnson Company stock if the dividend remains constant and you require a 10% rate of return?
a. $19.38
b. $18.21
c. $14.40
d. $18.00
e. $17.78