# Transcribed Image Text: 35. ABC Company currently sells 40,000 units of product X each year. Each unit costs P168 to produce and sells for P200. Fixed costs are P600,000 per

Transcribed Image Text: 35. ABC Company currently sells 40,000 units of product X each year. Each unit

costs P168 to produce and sells for P200. Fixed costs are P600,000 per year. The

firm has annual interest expense of P120,000 preferred stock dividends of

P42,000 per year, and a 30% tax rate. The degree of TOTAL leverage for LDM

Company is [round off to 2 decimal places] Transcribed Image Text: 37. The earnings, dividends, and stock price of ABC, Inc. are expected to grow at

7 percent per year after this year. Its common stock sells for P23 per share, its

last dividend was P2.00 and will pay P2.14 at the end of the current year. It should

pay P2.50 flotation cost. If the firm’s beta is 1.75, the risk-free rate is 8 percent,

and the average return on the market is 12 percent, what will be the firm’s cost of

equity using the CAPM approach? [nearest %]

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