Question

Ross Textiles wishes to measure its cost of common stock equity. The​ firm's stock is currently...

Ross Textiles wishes to measure its cost of common stock equity. The​ firm's stock is currently selling for

​$36.4136.41.

The firm expects to pay a

​$3.263.26

dividend at the end of the year​ (2016). The dividends for the past 5 years are shown in the following​ table:

​(Click on the icon located on the​ top-right corner of the data table below in order to copy its contents into a​ spreadsheet.)

Year

Dividend per Share

2015

​$2.962.96

2014

​$2.742.74

2013

​$2.322.32

2012

​$2.162.16

2011

​$2.022.02

After underpricing and flotation​ costs, the firm expects to net

​$33.5033.50

per share on a new issue.

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,

r Subscript srs.

d.  Using the​ constant-growth valuation​ model, determine the cost of new common​ stock,

r Subscript nrn.

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