Estimate the cost of common equity from the given information: Expected dividend for next year = $1.75; Stock price = $42.50; Growth rate= 7.00% (constant); and Flotation costs = 5.00%. a) 10.77% b) 11.33% c) 11.11% d) 12.50%
As per DDM |
Price*(1-floatation cost) = Dividend in 1 year* (1 + growth rate )/(cost of equity - growth rate) |
42.5*(1-0.05 )= 1.75/ (Cost of equity - 0.07) |
Cost of equity% = 11.33 |
Estimate the cost of common equity from the given information: Expected dividend for next year =...
You were recently hired by Scheuer Media Inc. to estimate its cost of capital. You obtained the following data: Expected dividend at the end of the year (D 1) = $1.75; Current stock price is $115.00; the expected growth rate of diviend per year is 7.00% (constant); and flotation cost is 5.00%. What is the cost of equity raised by selling new common stock?\ a. 10.49% b. 9.98% c. 7.05% d. 8.60% e. 8.52%
Problem 1: A corporation will pay a $1.00 dividend (D1) in the next 12 months on a share of common stock. The required rate of return is 5% and the constant growth rate is 4%. Compute the theoretical stock price. Problem 2: A corporation expects to pay dividends (D1) of $1.75 per share at the end of the current year and the current price of its common stock is $30 per share. The expected growth rate is 3.5% and flotation...
ADF stock paid a dividend yesterday of $3 per share. The dividend is expected to grow at a constant rate of 5% per year. The price of ADF's common stock today is $40 per share. If ADF decides to issue new common stock, flotation costs will equal 3% of the market price. ADF's marginal tax rate is 21%. Based on the above information, the cost of equity is: A) 20.93% B) 15.27% C) 11.33% D) 13.12%
A company is planning to issue new common stock. The expected dividend next year is $2.50, and the expected sales price is $35.00. The company's earnings are expected to grow at a constant rate for the foreseeable future. The return on S&P 500 is 8%, and the U.S. Treasury is traded at 3%. The flotation cost of issuing new common stock is 7%. If the company's stock has a beta of 1.55, what is the cost of common equity? 10.00%...
Cost of Equity: Dividend Growth Summerdahl Resort's common stock is currently trading at $28.00 a share. The stock is expected to pay a dividend of $1.75 a share at the end of the year (D1 = $1.75), and the dividend is expected to grow at a constant rate of 8% a year. What is the cost of common equity? Round your answer to two decimal places.
The cost of issuing new common stock is calculated the same way as the cost of raising equity capital from retained earnings. True: The cost of retained earnings and the cost of new common stock are calculated in the same manner, except that the cost of retained earnings is based on the firm's existing common equity, while the cost of new common stock is based on the value of the firm's share price net of its flotation cost. False: Flotation...
Given the following information: Percent of capital structure: Preferred stock Common equity (retained earnings) Debt 30% 40 30 Additional information: Corporate tax rate Dividend, preferred Dividend, expected common Price, preferred Growth rate Bond yield Flotation cost, preferred Price, common 40% $ 5.00 $ 3.80 $101.00 6% 6% $ 7.40 $ 72.00 Calculate the weighted average cost of capital for Digital Processing Inc. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Weighted Cost...
The cost of issuing new common stock is calculated the same way as the cost of raising equity capital from retained earnings. True: The cost of retained earnings and the cost of new common stock are calculated in the same manner, except that the cost of retained earnings is based on the firm's existing common equity, while the cost of new common stock is based on the value of the firm's share price net of its flotation cost. False: Flotation...
Cost of Equity with and without Flotation Jarett & Sons's common stock currently trades at $26.00 a share. It is expected to pay an annual dividend of $1.75 a share at the end of the year (D1 = $1.75), and the constant growth rate is 5% a year. What is the company's cost of common equity if all of its equity comes from retained earnings? Round your answer to two decimal places. Do not round your intermediate calculations. % If...
Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for S77.77. The firm just recently paid a dividend of $4.11. The firm has been increasing dividends regularly. Five years ago, the dividend was just $3.05. After underpricing and flotation costs, the firm expects to net $71.55 per share on a new issue. a. Determine average annual dividend growth rate over the past 5 years. Using that growth...