Question

The ABC Company is expected to have a constant annual growth rate of 5 percent. It has a price per share of P32 and pays an expected dividend of P2.40. Its competitor, the DEF Company is expected to have a growth rate of 10%, has a price per share of P72, and pays an expected P4.80/share dividend. The required rates of return on equity for the two companies are:
A. B. C. D.
ABC 13.8% 9.6% 12.5% 16.2%
DEF 15.4% 8.6% 16.7% 18.2%

Airlines is expected to pay an upcoming dividend of $3.29. The company's dividend is expected to grow at a steady, constant rate of 5% well into the future. ROMELfell currently has 1,600,000 shares of common stock outstanding. If the required rate of return for ROMELfell is 12%, what is the best estimate for the current price of ROMELfell's common stock?
A. $65.80 B. $62.51 C. $47.00 D. $27.41

Blair Brothers’ stock currently has a price of $50 per share and is expected to pay a year-end dividend of $2.50 per share (D1 = $2.50). The dividend is expected to grow at a constant rate of 4 percent per year. The company has insufficient retained earnings to fund capital projects and must, therefore, issue new common stock. The new stock has an estimated flotation cost of $3 per share. What is the company’s cost of equity capital?
a. 10.14% b. 9.21% c. 9.45% d. 9.32%

Answer 1

ABC Company: Answer- (C) 12.5%

DEF Comapny: Answer- (C) 16.7%

Current price of ROMELfell's common stock : Answer- (C) $47

Calculation of current price of ROMELfell's common stock

Formula

Current price of ROMELfell's common stock= Expected Dividend/( required rate of return on equity-Growth Rate)

=3.29/12%-5%

=$47

BLAIR BROTHERS COST OF CAPITAL: Answer- (d) 9.32%