Question

1. The Clause Solution, Inc., a residential window and door manufacturer, has the following historical record of earnings per share (EPS) from 2013 to 2017:

	2017	2016	2015	2014	2013
EPS	$1.10	$1.05	$1.00	$0.95	$0.90

The company’s payout ratio has been 60% over the last five years and the last quoted price of the firm’s stock was $10. Flotation costs for new equity will be 7%. The company has 30,000,000 common shares outstanding and a debt-equity ratio of 0.50.

1. If dividends are expected to grow at the same arithmetic average growth rate of the last five years, what is the dividend payment in 2018?
2. Calculate the firm’s cost of retained earnings and the cost of new common equity using the constant growth dividend discount model.
3. If the Clause Solution’s after-tax cost of debt is 9%, what is the WACC with retained earnings? With new common equity?

		2017	2016	2015	2014	2013
	EPS Growth Rate
	Average EPS Growth Rate
a)	Dividend2018
b)	Cost of RE
	Cost of New Equity
	WACC
c)	With Retained Earnings
	With New Equity

Please show any details in the EXCEL!!! Thank you !!

Answer 1