Question

b. D₁ = $0.21, P₀ = $40, g = 3%, F = $3.50. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
  Ke ____%

Kn ____%

c. E₁ (earnings at the end of period one) = $10, payout ratio equals 35 percent, P₀ = $39, g = 5.6%, F = $2.60. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Ke ____%

Kn ____%

d. D₀ (dividend at the beginning of the first period) = $4, growth rate for dividends and earnings (g) = 6%, P₀ = $65, F = $3. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Ke ____%

Kn ____%

Answer 1

Solution (6) The values provided in the question are as follows: $0.21 → (D1) Dividend at the end of year (Po) Current Price $40 > (9) (g) Growth Rate Growth Rate = 3% OR0.03 >(F) flotation cost $ 3.SO Demand Question. (A) (ke). Cost of equity (kn) Cost f new stock (A) Calculation of cost of equity (ke) Ке of ? (B). DI Po +g the values, using ke +0.03 $0.21 $40 Ке 0.03525 OR 3.525 0.00525 +0:03 Cost of equity (ke) - 3.53 %

cost (B) calculation of of new stock (Kn) + g DI Kna (Po -- F) Using the values, kna $0.21 + 0.03 $3.50) ($40 knz $0.21 +0.03 $36.50 knz 0100575342465 +0.03 kn = 0.03575342465 Cost of new stock (kn) 3.50 % 3.53% Conclusion: (ke) cast of equity 3.58% (kn) cost of new stock =

1 $ 39 5,6%. OR 0.056 Solution (C) The values provided in the question are as follows: →E) Earnings at at the end of year 1 = $10 Payout Ratio = 35 % OR0.35 → (Po) current Price Ig) Goowth Rate -> (F) flotation cost = $2.60 Demand (A, (ke) cost of equity (B), (kn) Cost of New stock 2 1, calculation of Dividend at the end of years(Di) Di = {aming Eaming at the end of yearl (E.) x Payout Using the values, Di $10 0.35 = $3.50 Dividend at the end of year 1 (Di) = $3.50 of Question Dr. C. yout Ratto

of tg Ke= +0.056 (A) Calculation cost of equity (ke) Ke = Po using the values, $ 3.50 $ 39 ke=0.08974358974 +0.056 70.14574358974 cost of equity (ke) = 14.57% (B) Calculation of cost of newstock(Kn) + g Using the values, kn = Di (Po-F) the values, $ 3.50 + 0.056 $39 - $260 kn= $3.50 +0.056 $36.40 Kna Kn=0.09615384615 +0.056 = 0.15215384615 cost of new stock (len) – 15.22% Conclusion (ke) cost of equily = 14.57 %. (kn) cost of New stock = 15.22%

= 6%0R0.06 $65 $3 Solution (d) The values provided in the question are as follows: >Do) Dividend at the begining of the first berted = $4 → (g) Growth Ralē for Dividends and earnings ? Po) Current Price (F) Flotation cost Demand of Question (A) (ke) cost of equity = ? (B) (kn) Cost of (A) Calculattm of cost of equity (ke) 'Ke. Dolito) CP new stock = ? + g Po Using the values, $4(1+0.06) +0.06 ke: $65 ke +0.06 $4(1.06) $65 ke= $4,24 +0.06 Ке 0.06 52 3076923 +0.06 0.12523076923 12.52% Cost of equity (ke)

(B)_ Calculation't cost 4 New stock (Kn) Kn Do(1+9) (Po-F) + g the values, Kn= $4 (1+0:06) ($65-$3) kns $4(1.06) +0.06 Using +0.06 $ 62 Kn= $4.24 +0006 $62 Kn=0.06838709677 +0.06 12.04 Kn=0.12838709677 Cost of new stock (Kn) conclusion (ke) cost of equity (kn) cost of New stock 12,52 % 19.04%