1. (Measuring growth) Given that a firm's return on equity is 18 percent and management plans to retain 40 percent of earnings for investment purposes, what will be the firm's growth rate
2. (Common stockholder expected return) If you purchased 125 shares of common stock that pays an end-of-year dividend of $3, what is your expected rate of return if you purchased the stock for $30 per share? Assume the stock is expected to have a constant growth rate of 7 percent.
3.?(Terminology) Match the following terms with their definitions: Terms Definitions Opportunity cost The target mix of sources of funds that the firm uses when raising new money to invest in the firm. Financial policy A weighted average of the required rates of return of the firm's sources of capital (after adjusting for flotation costs and tax considerations). Cost of capital The cost of making a choice in terms of the next best alternative that must be foregone. Transaction costs The expenses that a firm incurs when raising funds by issuing a particular type of security.