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 $68.92. The firm expects to pay a $3.41 dividend at the end of the year (2016). The dividends for the past 5 years are shown in the following table:

Year         Dividend per Share

2015             $3.07

2014             $2.63

2013             $2.59

2012             $2.28

2011             $2.02

A) Determine the growth rate of dividends from 2011 to 2015.

B)Determine the net? proceeds, Nn?, that the firm will actually receive.

C) Using the? constant-growth valuation? model, determine the cost of retained? earnings, rs

D) Using the? constant-growth valuation? model, determine the cost of new common? stock, rn

Answer 1

A. Dividend growth rate (D2015-D2011)/D2011 = (3.07-2.02)/2.02 =0.5198 over 4 year period. So annual dividend growth rate =(1+0.5198)^(1/4) -1 = 0.1103 = 11.03%

B. Net proceeds of the Firm (should be given in the question floataion cost) - We cannot calculate this due to incomplete question

C. Cost of rerained earnings = D1/P0 + g = 3.41/68.92 + 0.1103 = 0.1598 = 15.98%

D. Cost of new common stock-  - We cannot calculate this due to incomplete question