Question

A company's common stock is currently selling at $40 per share. It's most recent divided was...

A company's common stock is currently selling at $40 per share. It's most recent divided was $1.60, and the financial community expects that it's dividend will grow at 10% per year in the foreseeable future. What is the company's equity cost of retained earnings? If the company sells new common stock to finance new projects and most pay $2 per share in flotation costs, what is the cost of equity?

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Cost of capital    Edna Recording​ Studios, Inc., reported earnings available to common stock of $4,000,000 last...
Cost of capital    Edna Recording​ Studios, Inc., reported earnings available to common stock of $4,000,000 last year. From those​ earnings, the company paid a dividend of $1.15 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 35​% debt, 15​% preferred​ stock, and 50​% common stock. It is taxed at a rate of 27​%. a.  If the market price of the common stock is $40 and dividends are expected to grow at a rate of...
Edna Recording​ Studios, Inc., reported earnings available to common stock of ​$5,000,000 last year. From those​...
Edna Recording​ Studios, Inc., reported earnings available to common stock of ​$5,000,000 last year. From those​ earnings, the company paid a dividend of ​$1.15 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 45​% ​debt, 10​% preferred​ stock, and 45​% common stock. It is taxed at a rate of 30​%.  If the market price of the common stock is ​$31 and dividends are expected to grow at a rate of 9​% per year for...
1. Banyan Co.’s common stock currently sells for $35.25 per share. The growth rate is a...
1. Banyan Co.’s common stock currently sells for $35.25 per share. The growth rate is a constant 5%, and the company has an expected dividend yield of 5%. The expected long-run dividend payout ratio is 50%, and the expected return on equity (ROE) is 10.0%. New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of new equity? Do not round intermediate calculations. Round...
Southern Corporation has a capital structure of 40% debt and 60% common equity. This capital structure...
Southern Corporation has a capital structure of 40% debt and 60% common equity. This capital structure is expected not to change. The firm's tax rate is 34%. The firm can issue the following securities to finance capital investments: Debt: Capital can be raised through bank loans at a pretax cost of 8.5%. Also, bonds can be issued at a pretax cost of 10%. Common Stock: Retained earnings will be available for investment. In addition, new common stock can be issued...
Chooc possesses common stock selling for $45.00 per share, for some reasons, Chooc expects to earn...
Chooc possesses common stock selling for $45.00 per share, for some reasons, Chooc expects to earn $3.75 per share during the current year, and he expects a payout ratio is 70%, and constant growth rate is 6.00%. He also will issue new stock to be sold to the public at the current price, with a flotation cost of 8.5% By how much would the cost of new stock exceed the cost of retained earnings (old common stock)?
BJK Inc.’s common stock currently sells for $150.00 per share, the company expects to earn $27.50...
BJK Inc.’s common stock currently sells for $150.00 per share, the company expects to earn $27.50 per share during the current year, its expected payout ratio is 70%, and its expected constant growth rate is 6.00%. New stock can be sold to the public at the current price, but a flotation cost of 7.7% would be incurred. By how much would the cost of new stock exceed the cost of retained earnings?
BJK Inc.’s common stock currently sells for $150.00 per share, the company expects to earn $27.50...
BJK Inc.’s common stock currently sells for $150.00 per share, the company expects to earn $27.50 per share during the current year, its expected payout ratio is 70%, and its expected constant growth rate is 6.00%. New stock can be sold to the public at the current price, but a flotation cost of 7.7% would be incurred. By how much would the cost of new stock exceed the cost of retained earnings?
Hank Corp.'s common stock currently sells for $24 per share. The most recent dividend (Do) was...
Hank Corp.'s common stock currently sells for $24 per share. The most recent dividend (Do) was $2.2, and the expected growth rate in dividends per year is 7%. The cost of common equity, Re, is ____%. Round your final answer to 2 decimal places (example: enter 12.34 for 12.34%), but do not round any intermediate work in the process.
Trahern Baking Co. common stock sells for $33.45 per share. It expects to earn $3.00 per...
Trahern Baking Co. common stock sells for $33.45 per share. It expects to earn $3.00 per share during the current year, its expected dividend payout ratio is 60%, and its expected constant dividend growth rate is 6.0%. New stock can be sold to the public at the current price, but a flotation cost of 4.5% would be incurred. What would be the cost of equity from new common stock? 19.57% 21.08% 21.70% 15.78% 14.05%
Jarett & Sons's common stock currently trades at $37.00 a share. It is expected to pay...
Jarett & Sons's common stock currently trades at $37.00 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? Do not round intermediate calculations. Round your answer to two decimal places. % If the company issued new stock, it would incur...