1. Given a current dividend of 3, a required return of 10% and a dividend growth rate of 2% forever, compute the current value of this stock.
38.25
37.5
30
150
2. A firm has a debt-equity ratio of 1.0. The required return on the firm’s assets is 11.1% and the pre-tax cost of debt is 4.1%. Ignore taxes. What is the firm’s cost of equity?
15.3%
18.1%
23.1%
21.7%