Question

Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for $75.49. The firm just recently paid a dividend of $4.06. The firm has been increasing dividends regularly. Five years ago, the dividend was just $3.01. After underpricing and flotation costs, the firm expects to net $66.43 per share on a new issue. a. Determine average annual dividend growth rate over the past 5 years. Using that growth rate, what dividend would you expect the company to pay next year? b. Determine the net proceeds, Nn, that the firm will actually receive. c. Using the constant-growth valuation model, determine the required return on the company's stock, rs, which should equal the cost of retained earnings, rr. d. Using the constant-growth valuation model, determine the cost of new common stock, rp. a. The average annual dividend growth rate over the past 5 years is 6.17 %. (Round to two decimal places.) Using that growth rate, the dividend you expect the company to pay next year is $ . (Round to two decimal places.)

I just need help with the 2nd part of a

Thank you!

Answer 1

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ke - Microsoft Excel (Product Activation Failed) Add-Ins File Home Insert Page Layout Formulas Data Review View - 2x % Cut Σ AutoSum : A Calibri Dr General -11AA = = = D- DA E Copy Paste Format Painter Clipboard Wrap Text Merge Merge & Center - Center BI U SF $ % % , 4:0 .00 :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Fill 2 Clear Sort & Find & Filter Select Editing Font Alignment Number Cells DK296 DE DG DH DI DJ DK DL DM DN DO 292 293 294 ROSS TEXTILE PV = FV= 3.01 4.06 295 296 n= 297 298 a 299 6.17% [=RATE(D1296,-D1294,D1295)] 300 D1 = DO*(1+g) = 4.06*(1+0.0617) = 4.3104 4.31 [ dividend expected for next year ] NET PROCEEDS = 66.43 301 302 b 303 304C 305 306 d 307 COST OF RETAINED EARNINGS = D1/PO + g = 4.3104/75.49+ 0.0617= 11.88% COST OF NEW COMMON STOCK = D1/PO + g = 4.3104/66.43 + 0.0617 = 12.66% K 208 M Rea convexity DGM beta port future INDEX INTL CAP BUD LEASING PV, FV, ANNUITY DIR right clean KE CAPM UTILITY, SHARPE, beta ferences: GX38 YIELD bond portfolio cap stru WACC RESI el 200 150% 0 + B 9 . * * DENG 29-10-2019 6.