10. Beta Corporation issued new common stock at a market price of 40 Lira. Dividends last...

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10. Beta Corporation issued new common stock at a market price of 40 Lira. Dividends last year were 2 Lira and are expected t

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Answer 1

Answer #1

Answer (A):

Alfa's Cost of equity = (Dividend next year / (Market price - Flotation cost)) + Annual growth rate

= (2 * (1 + 4%) / (40 - 1.5)) + 4%

= 9.40%

Alfa's Cost of equity = 9.40%

Answer (B):

Investor's required rate of return = (Dividend next year / Market price) + Annual growth rate

= (2 * (1 + 4%) / 40) + 4%

= 9.20%

Investor's required rate of return = 9.20%

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Answer 2

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