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Elementary,Middle School,High School,College,University,PHD
| Teaching Since: | May 2017 |
| Last Sign in: | 398 Weeks Ago, 6 Days Ago |
| Questions Answered: | 66690 |
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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
Cost of Capital. Eureka Membership Warehouse, Inc., is a rapidly growing chain of retail outlets offering brand-name merchandise at discount prices. A security analyst=s report issued by a national brokerage firm indicates that debt yielding 13% composes 25% of Eureka=s overall capital structure. Furthermore, both earnings and dividends are expected to grow at a rate of 15% per year. Currently, common stock in the company is priced at $30, and it should pay $1.50 per share in dividends during the coming year. This yield compares favorably with the 8% return currently available on risk-free securities and the 14% average for all common stocks, given the company=s estimated beta of 2. A. Calculate Eureka=s component cost of equity using both the capital asset pricing model and the dividend yield plus expected growth model. B. Assuming a 40% marginal federal-plus-state income tax rate, calculate Eureka=s weighted average cost of capital.
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