Your company's stock sells for $50 per share, its last dividend (D0) was $2.00, its growth...

Your company's stock sells for $50 per share, its last dividend (D0) was $2.00, its growth rate is a constant 5 percent, and the company would incur a flotation cost of 15 percent if it sold new common stock. Net income for the coming year is expected to be $500,000, the firm's payout ratio is 60 percent, and its common equity ratio is 30 percent. If the firm has a capital budget of $1,000,000, what component cost of common equity will be built into the WACC for the last dollar of capital the company raises?

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Morgan Company's last dividend (D0) was $1.40. Its dividend growth rate is expected to be constant...

Morgan Company's last dividend (D0) was $1.40. Its dividend growth rate is expected to be constant at 24% for 2 years, after which dividends are expected to grow at a rate of 6% forever. If the company's required return is 12%, what is your estimate of its current stock price? Your answer should be between 18.40 and 78.16.

Hope corporation paid a dividend of $2.00 (D0) last year. The growth rate is expected to...

Hope corporation paid a dividend of $2.00 (D0) last year. The growth rate is expected to be 20 percent and 10 percent during the next two years, and then the growth rate is expected to be a constant 5 percent thereafter. The required rate of return on equity (rS) is 10 percent. What is the current stock price (P0)?

Company XYZ common stock just paid a dividend of $2.00 per share and its dividend is...

Company XYZ common stock just paid a dividend of $2.00 per share and its dividend is expected to grow at 10 percent per year for three years and then grow at 4 percent per year forever. XYZ stocks have a 13 percent required return. You should you be willing to pay?

WIN Corp just paid a dividend (today) of $2.00 per share on its stock.

WIN Corp just paid a dividend (today) of $2.00 per share on its stock. The dividends are expected to grow at a constant 16% per year indefinitely. If investors require a 23% return on CO stock, what is the current price? a. $28.57 b. $33.14 c. $35.14 d. $12.50 e. $29.00

Nonconstant Dividend Growth Valuation A company currently pays a dividend of $3.6 per share (D0 =...

Nonconstant Dividend Growth Valuation A company currently pays a dividend of $3.6 per share (D0 = $3.6). It is estimated that the company's dividend will grow at a rate of 16% per year for the next 2 years, and then at a constant rate of 6% thereafter. The company's stock has a beta of 1.6, the risk-free rate is 8.5%, and the market risk premium is 5%. What is your estimate of the stock's current price? Do not round intermediate...

Nonconstant Dividend Growth Valuation A company currently pays a dividend of $3.8 per share (D0 =...

Nonconstant Dividend Growth Valuation A company currently pays a dividend of $3.8 per share (D0 = $3.8). It is estimated that the company's dividend will grow at a rate of 24% per year for the next 2 years, and then at a constant rate of 5% thereafter. The company's stock has a beta of 1.4, the risk-free rate is 6.5%, and the market risk premium is 2%. What is your estimate of the stock's current price? Do not round intermediate...

XYZ Company's current stock price is $30 per share, its last paid dividend was $2.5 per share, and its required rate of return is 10%.

XYZ Company's current stock price is $30 per share, its last paid dividend was $2.5 per share, and its required rate of return is 10%. If dividends are expected to grow at a constant rate, g, in the future, what is XYZ Company's expected stock price 5 years from now?

The Jackson–Timberlake Wardrobe Co. just paid a dividend of $2.00 per share on its stock. The...

The Jackson–Timberlake Wardrobe Co. just paid a dividend of $2.00 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Investors require a return of 12 percent on the company's stock. A. What is the current stock price? B. What will the stock price be in three years? C. What will the stock price be in 12 years?

The Jackson–Timberlake Wardrobe Co. just paid a dividend of $2.00 per share on its stock. The...

The Jackson–Timberlake Wardrobe Co. just paid a dividend of $2.00 per share on its stock. The dividends are expected to grow at a constant rate of 4 percent per year indefinitely. Investors require a return of 12 percent on the company's stock. What is the current stock price? What will the stock price be in three years? What will the stock price be in 12 years?

Determine the price of a share of stock whose last annual dividend payment (D0) was $1.50,...

Determine the price of a share of stock whose last annual dividend payment (D0) was $1.50, assuming a required rate of return of 12% and considering the following: The dividend payment is expected to remain constant (i.e., g = 0) indefinitely. The dividend payment is expected to grow at a constant rate of 3% per year indefinitely. The dividend payment is expected to grow at a rate of 8% for four years and then immediately decline to 3% indefinitely. See...

Subjects