Question

A firm's stock is selling for $178.35. The dividend yield is 5%. A 3% growth rate...

A firm's stock is selling for $178.35. The dividend yield is 5%. A 3% growth rate is expected for the common stock. The firm's tax rate is 40%. What is the firm's cost of common equity?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

8.00%

Step-1:Calculation of dividned in 1 years
Dividend in 1 year = Current Price * Dividend Yield
= $ 178.35 * 5%
= $       8.92
Step-2:Calculation of cost of common equity
Cost of common equity = (D1/P0)+g
= (8.92/178.35)+0.03
= 8.00%
Where,
D1 = $       8.92
P0 = $ 178.35
g = 3%
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
11.    A firm's preferred stock pays an annual dividend of $2, and the stock sells for $65....
11.    A firm's preferred stock pays an annual dividend of $2, and the stock sells for $65. Flotation costs for new issuances of preferred stock are 5% of the stock value. What is the after-tax cost of preferred stock if the firm's tax rate is 30%? 12.    A firm's stock is selling for $62. The next annual dividend is expected to be $3.00. The growth rate is 9%. The flotation cost is $5.00. What is the cost of retained earnings? 13.    A firm's...
Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $29.00 per...
Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $29.00 per share. The firm's dividend for next year is expected to be $5.30 with an annual growth rate of 5.0% thereafter indefinitely. If the firm issues new stock, the flotation costs would equal 15.0% of the stock's market value. The firm's marginal tax rate is 40%. What is the firm's cost of internal equity?
Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $60.00 per...
Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $60.00 per share. The firm's dividend for next year is expected to be $5.30 with an annual growth rate of 6.0% thereafter indefinitely. If the firm issues new stock, the flotation costs would equal 15.0% of the stock's market value. The firm's marginal tax rate is 40%. What is the firm's cost of external equity?
Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $38.00 per...
Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $38.00 per share. The firm's dividend for next year is expected to be $4.10 with an annual growth rate of 7.0% thereafter indefinitely. If the firm issues new stock, the flotation costs would equal 15.0% of the stock's market value. The firm's marginal tax rate is 40%. What is the firm's cost of external equity? 18.57% 17.79% 18.54% 20.58% 19.69% Marginal Incorporated (MI) has determined that...
Question 3 a) The Evanec Company's next expected dividend, D1, is $3.63; its growth rate is...
Question 3 a) The Evanec Company's next expected dividend, D1, is $3.63; its growth rate is 5%; and its common stock now sells for $30. New stock (external equity) can be sold to net $25.50 per share. What is Evanec's cost of retained earnings, rs? Round your answer to two decimal places. What is Evanec's percentage flotation cost, F? Round your answer to two decimal places. What is Evanec's cost of new common stock, re? Round your answer to two...
The dividend growth rate is expected to be 2.2% a year. Preferred stock sells for $178...
The dividend growth rate is expected to be 2.2% a year. Preferred stock sells for $178 and pays an annual dividend of $21. There are currently 20 year 5.77% coupon bonds, with a face value of $1,000, that pay semi-annual payments and are non-callable available at a price of $1,015.25. The bond-yield risk premium is 3%. The current risk free rate is .2% and the market risk premium is 5.7%. Clorox has a target capital structure of 30% debt, 7%...
7. Cost of Equity: Dividend Growth Summerdahl Resort's common stock is currently trading at $39 a...
7. Cost of Equity: Dividend Growth Summerdahl Resort's common stock is currently trading at $39 a share. The stock is expected to pay a dividend of $2.25 a share at the end of the year (D1 = $2.25), and the dividend is expected to grow at a constant rate of 7% a year. What is the cost of common equity? Round your answer to two decimal places. 8. Cost of Equity: CAPM Booher Book Stores has a beta of 0.7....
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...
A firm's new financing will be in proportion to the market value of its current financing...
A firm's new financing will be in proportion to the market value of its current financing shown below. Carrying Amount ($000 Omitted) Long-term debt $7,000 Preferred stock (100,000 shares) 1,000 Common stock (200,000 shares) 7,000 The firm's bonds are currently selling at 80% of par, generating a current market yield of 9%, and the corporation has a 40% tax rate. The preferred stock is selling at its par value and pays a 6% dividend. The common stock has a current...
1.     Tennessee Water has $1,000 par value bonds outstanding at 5% interest. The bonds will  mature in 20...
1.     Tennessee Water has $1,000 par value bonds outstanding at 5% interest. The bonds will  mature in 20 years. Compute the current price of the bonds if the present yield to maturity is 7% 2.    Exodus Company has $1,000 par value bonds outstanding at 6% interest. The bonds will mature in 15 years. Compute the current price of the bonds if the current interest rate is 4%. 3.     The preferred stock of Ultra Corporation pays an annual dividend of $7.00. It has a required...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT