Question
In: Finance
cost of common stock equity.Ross Textiles wishes to measure its cost of common stock equity. The...
cost of common stock equity.Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for $35.41 . The firm expects to pay a $3.25 dividend at the end of the year (2016). The dividends for the past 5 years are shown in the following table:
Year Dividend per share
2015 2.97
2014 2.65
2013 2.44
2012 2.14
2011 2.06
After underpricing and flotation costs, the firm expects to net $32.93 per share on a new issue.
a. Determine the growth rate of dividends from 2011 to 2015.
b.Determine the net proceeds,Nn, that the firm will actually receive.
c. Using the constant-growth valuation model, determine the cost of retained earnings, Rs.
d. Using the constant-growth valuation model, determine the cost of new common stock,Rn
Solutions
Expert Solution
a . Dividend Growth rate
Current Dividend 2015 = Dividend 2011 * (1 + Growth)^4
2.97 = 2.06 * (1 + Growth)^4
Growth Rate = 9.58%
b. Net proceeds = $32.93 (Given)
c. Cost of retained Earnings & Cost of new common stock
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jeff jeffy answered 2 years agoRelated Solutions
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