1. You were recently hired by Nast Media Inc. to estimate its cost of capital. You were provided with the following data: D1 = $2.00; P0 = $55.00; g = 8.00% (constant); and F = 5.00%. What is the cost of equity raised by selling new common stock?
11.24%
11.83%
13.04%
12.42%
2. Which of the following motives for holding cash concerns managers’ ability to weather shocks to operating cash flows (i.e., litigation risk or losing a major customer)?
Transaction motive
Precautionary motive
Speculative motive
Agency motive.