Question

15.A stock is trading for 12, and just paid a dividend of 1.3 which is expected...

15.A stock is trading for 12, and just paid a dividend of 1.3 which is expected to grow at a fraction 0.19 per year. If Goldman Sacs charges a fraction 0.13 as a flotation cost, what is the required rate of return on a new stock issue?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Given,

Current price = 12

Dividend = 1.3

Growth rate = 0.19

Flotation cost = 0.13

Solution :-

Required rate of return = [Dividend x (1 + growth rate) {Current price x (1 - flotation cost)}] + growth rate

= [{1.3 x (1 + 0.19)} {12 x (1 - 0.13)}] + 0.19

= [{1.3 x 1.19} {12 x 0.87}] + 0.19

= [1.547 10.44] + 0.19

= 0.14818 + 0.19 = 0.3382 or 33.82%

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
A stock just paid an annual dividend of $1.3. The dividend is expected to grow by...
A stock just paid an annual dividend of $1.3. The dividend is expected to grow by 9% per year for the next 4 years. The growth rate of dividends will then fall steadily from 9% after 4 years to 3% in year 8. The required rate of return is 12%. What is the stock price if the dividend growth rate will stay 3% forever after 8 years?
1) A stock just paid a dividend of $0.50. If the dividend is expected to grow...
1) A stock just paid a dividend of $0.50. If the dividend is expected to grow 3% per year, what will the price be if the required return is 9%? 2) A stock is expected to pay a dividend of $1 at the end of the year. The required rate of return is 11%, and the expected growth rate is 5%. What is the current stock price? 3) A stock just paid a dividend of $1. The required rate of...
A stock just paid an annual dividend of $6.4. The dividend is expected to grow by...
A stock just paid an annual dividend of $6.4. The dividend is expected to grow by 2% per year for the next 4 years. In 4 years, the P/E ratio is expected to be 11 and the payout ratio to be 60%. The required rate of return is 8%. What is the expected capital gains yield?
A stock just paid an annual dividend of $7.9. The dividend is expected to grow by...
A stock just paid an annual dividend of $7.9. The dividend is expected to grow by 6% per year for the next 4 years. In 4 years, the P/E ratio is expected to be 14 and the payout ratio to be 60%. The required rate of return is 8%. Part 1 What should be the current stock price?
APCE common stock just paid a dividend of $1.00 per share, but its dividend is expected...
APCE common stock just paid a dividend of $1.00 per share, but its dividend is expected to grow at 10 percent per year for four years and then grow at 6 percent per year forever. How much should you be willing to pay for the APCE stock? Assume 12% required return. 20.24 27.29 16.62 25.83
Sentry Manufacturing just paid a dividend $5 per share. The dividend is expected to grow at...
Sentry Manufacturing just paid a dividend $5 per share. The dividend is expected to grow at a constant rate of 8% per year. The price of Sentry Manufacturing's stock today is $32 per share. If Sentry Manufacturing decides to issue new common stock, flotation costs will equal $2.70 per share. Sentry Manufacturing's marginal tax rate is 35%. Based on the above information, the cost of retained earnings (internal equity) is       A) 23.72%. B) 24.12%. C) 24.88%. C is the...
KayCee paid a dividend yesterday of $3.50 per share. The dividend is expected to grow at...
KayCee paid a dividend yesterday of $3.50 per share. The dividend is expected to grow at a constant rate of 10% per year. The price of KayCee's common stock today is $40 per share. If KayCee decides to issue new common stock, flotation costs will equal $4.00 per share. KayCee's marginal tax rate is 35%. Based on the above information, the cost of new common stock is?
A stock just paid a dividend of $2.19. The dividend is expected to grow at 20.58%...
A stock just paid a dividend of $2.19. The dividend is expected to grow at 20.58% for two years and then grow at 4.84% thereafter. The required return on the stock is 13.12%. What is the value of the stock?
A stock just paid a dividend of $2.31. The dividend is expected to grow at 25.95%...
A stock just paid a dividend of $2.31. The dividend is expected to grow at 25.95% for five years and then grow at 3.10% thereafter. The required return on the stock is 12.72%. What is the value of the stock?
A stock just paid a dividend of $2.56. The dividend is expected to grow at 20.57%...
A stock just paid a dividend of $2.56. The dividend is expected to grow at 20.57% for five years and then grow at 3.94% thereafter. The required return on the stock is 13.27%. What is the value of the stock?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT