ACT

IVI
TY:
Cos
tof
Pre
fer
redS
toc
kan
dCo
sto
fCo
mmo
nSt
ock

Na
me:
RAMOS
,TR
ISH
AO.

Co
urs
e/S
ect
ion
:BS
BAF
M-3
E
1.
S&MCo rp
.iss
uedpre
fer
redstockswi
thanun
derwr
iti
ngcosto
f3%pers
har
e.T
hesto
cksareexp
ect
edtopr
ovi
dea
P4di
vi
dendpersha
reatth
etimeo f
issu
e.Nowth
ec o
mp an
yissel
l
i
ngt
hest
ocksi
nth
ema r
ketfo
rP30pers
har
e.
Comput
eforthecostofp
refer
redstoc
k.

S
OLUT
ION:

K
p=1
3.
75%

2
.Ass
umetha
tthestocko
fYmeCo r
pora
ti
onhasama r
ketpr
ic
eofP65
.Atth
eendoft
heye
ar,
div
ide
ndsar
e
e
xpe
ctedt
obep a
idatP7pe
rshar
e.Th
egrowthrat
eisexpe
ctedt
obecon
stan
tata
nannu
alr
ateof6%.Co
mpu
tef
or
t
hecos
tofequ
it
yu s
in
gConsta
ntDi
vid
endGro
wt hModel
.

S
OLUT
ION:

K
e=1
6.
77%
3
.Assumethatne
ws hare
sofcommonstoc
ksareis
suedbyRZCo r
por
ati
onhavi
ngamar
ket
p
ri
ceof P4
0 .
Attheendofth
eyear
,di
vi
dendsar
ee x
p e
ctedt
ob epai
datP4pe
rshare
.I
t
i
ncu
rre
daf l
otat
ionco
s tof4
%o ft
hemarke
tp r
ic
eo fth
estock
s.Thegr
owthra
teis
e
xpect
e dtobecons
tantatana
nnual
rat
eof 4
%.Co mput
eforthecos
tofequ
it
yu s
in
gGGM.

S
OLUT
ION:

K
e=1
4.
42%
4
.As
sumethatTYCorp.i
ss
uesaP900,
000
,10%,1
0yearb
ondwho
senetp
roce
edsar
e
P
850
,000.
Thetaxr
a t
eo nt
hefi
rmis3
0%.Computeth
ecosto
fequ
it
yusi
ngt
hebon
dplu
s
a
ppr
oachmodel
withtheas
sumpti
ont
hatr
iskpr
emiu
misat5%

S
OLUT
ION:

K
e=1
2.
6%

5
.As
sumeth
atLOVECor
pexp
ect
edret
urnonth
emar
keti
s10%.TheTre
asu
rybi
l
lra
tea
t
t
het
imeof
esti
mati
oni
s5%wi
thabe
taof 1
.
1.Co
mpu
tethec
os to
fe q
uit
yusi
ngt
heCAP
M.
S
OLUTI
ON: