part A The Drogon Co. just issued a dividend of $2.51 per share on its common...

part A

The Drogon Co. just issued a dividend of $2.51 per share on its common stock. The company is expected to maintain a constant 7 percent growth rate in its dividends indefinitely. If the stock sells for $60 a share, what is the company's cost of equity?

Part B

Lannister Manufacturing has a target debt-equity ratio of 0.65. Its cost of equity is 16 percent, and its cost of debt is 12 percent. If the tax rate is 35 percent, what is the company's WACC?

Part C

Fama's Llamas has a weighted average cost of capital of 12.5 percent. The company's cost of equity is 16 percent, and its pretax cost of debt is 7.5 percent. The tax rate is 34 percent. What is the company's target debt-equity ratio?

Expert Solution

jeff jeffy answered 8 months ago

Suppose Potter Ltd. just issued a dividend of $2.51 per share on its common stock. The...

Suppose Potter Ltd. just issued a dividend of $2.51 per share on its common stock. The company paid dividends of $2.01, $2.08, $2.25, and $2.35 per share in the last four years. What was the dividend growth rate for each year? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) What were the arithmetic average and geometric average dividend growth rates over the past four years? (Do not round intermediate...

Suppose Powers Ltd. just issued a dividend of $2.55 per share on its common stock. The...

Suppose Powers Ltd. just issued a dividend of $2.55 per share on its common stock. The company paid dividends of $2.05, $2.12, $2.29, and $2.39 per share in the last four years. Required: What was the dividend growth rate for each year? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Growth rate Year 1 % Year 2 % Year 3 % Year 4 % What were the arithmetic and...

Suppose Hornsby Ltd. just issued a dividend of $2.55 per share on its common stock. The...

Suppose Hornsby Ltd. just issued a dividend of $2.55 per share on its common stock. The company paid dividends of $2.05, $2.12, $2.29, and $2.39 per share in the last four years. What was the dividend growth rate for each year? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Growth rate Year 1 % Year 2 % Year 3 % Year 4 % What were the arithmetic and geometric...

Suppose Hornsby Ltd. just issued a dividend of $2.48 per share on its common stock. The...

Suppose Hornsby Ltd. just issued a dividend of $2.48 per share on its common stock. The company paid dividends of $1.98, $2.05, $2.22, and $2.32 per share in the last four years. If the stock currently sells for $67, what is your best estimate of the company’s cost of equity capital using arithmetic and geometric growth rates? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity...

Suppose Potter Ltd. just issued a dividend of $2.50 per share on its common stock. The...

Suppose Potter Ltd. just issued a dividend of $2.50 per share on its common stock. The company paid dividends of $2.00, $2.07, $2.24, and $2.34 per share in the last four years. If the stock currently sells for $69, what is your best estimate of the company’s cost of equity capital using arithmetic and geometric growth rates?

The In-Tech Co. just paid a dividend of $1 per share. Analysts expect its dividend to...

The In-Tech Co. just paid a dividend of $1 per share. Analysts expect its dividend to grow at 25% per year for the next three years and then at a constant growth rate per year thereafter. The estimate of the constant growth rate of dividend is based on the long term return of equity 25% and payout ratio 80%. If the required rate of return on the stock is 18%, what is the current value of the stock? Clearly show...

The In-Tech Co. just paid a dividend of $1.5 per share. Analysts expect its dividend to...

The In-Tech Co. just paid a dividend of $1.5 per share. Analysts expect its dividend to grow at 20 percent per year for the next three years and then 3 percent per year thereafter. If the required rate of return on the stock is 5.5 percent. What is the current value of the stock ? 96.80 94.15 none of the above 98.30 92.16

Storico Co. just paid a dividend of $1.55 per share. The company will increase its dividend...

Storico Co. just paid a dividend of $1.55 per share. The company will increase its dividend by 24 percent next year and then reduce its dividend growth rate by 6 percentage points per year until it reaches the industry average of 6 percent dividend growth, after which the company will keep a constant growth rate forever. If the stock price is $27.28, what required return must investors be demanding on the company's stock? (Hint: Set up the valuation formula with...

Yoland Co. just paid a dividend of $2.00 per share. The company will increase its dividend...

Yoland Co. just paid a dividend of $2.00 per share. The company will increase its dividend by 20 percent next year and then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the stock price is $53.04, what required return must investors be demanding on the company's stock? (Hint: Set up the valuation formula with...

Storico Co. just paid a dividend of $1.75 per share. The company will increase its dividend...

Storico Co. just paid a dividend of $1.75 per share. The company will increase its dividend by 24 percent next year and then reduce its dividend growth rate by 6 percentage points per year until it reaches the industry average of 6 percent dividend growth, after which the company will keep a constant growth rate forever. If the stock price is $44.96, what required return must investors be demanding on the company's stock? (Hint: Set up the valuation formula with...

Question