Banyan Co.'s common stock currently sells for $42.75 per share. The growth rate is a constant 5%, and thecompany has an expected dividend yield of 5%. The expected long-run dividend payout ratio is 50%, and theexpected return on equity (ROE) is 10.0%. New stock can be sold to the public at the current price, but aflotation cost of 5% would be incurred. What would be the cost of new equity? Do not round intermediatecalculations. Round your answer to two decimal places.%

Answer:The cost of new equity (Re) can be calculated using the Gordon Growth Model, taking into…

Answered: Banyan Co.'s common stock currently…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Barton Industries expects next year's annual dividend, D1, to be $2.30 and it expects dividends to grow at a constant rate g = 4.9%. The firm's current common stock price, P0, is $25.00. If it needs to issue new common stock, the firm will encounter a 4.5% flotation cost, F. What is the flotation cost adjustment that must be added to its cost of retained earnings? Do not round intermediate calculations. Round your answer to two decimal places. _____% What is the cost of new common equity considering the estimate made from the three estimation methodologies? Do not round intermediate calculations. Round your answer to two decimal places. _____%
Southern Power just paid an annual dividend of $7.7 per share. Because of increasing competition from home solar installations, the dividend is expected to shrink by 2% per year. The required rate of return is 8%. What is the value of the stock?
Banyan Co.’s common stock currently sells for $52.00 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 25%, and the expected return on equity (ROE) is 7%. New stock can be sold to the public at the current price, but a flotation cost of 15% would be incurred. What would be the cost of new equity? Do not round intermediate calculations. Round your answer to two decimal places.
M&M Corporation just paid a dividend of $1.55. It is expected to increase its dividend by 2% per year. B&B Corporation is expected to pay a $2.55 dividend in one year. It is expected to grow at 4% per year. The market requires a return of 12% on assets at similar risk level., a) What is the stock price of M&M Corporation? b) What is the stock price of B&B Corporation?
Schnusenberg Corporation just paid a dividend of DO $2.10 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 2.00, the required return on the market is 14.50%, and the risk - free rate is 4.50%. What is the company's current stock price? Do not round intermediate calculations. a. $12.43 b. $11.67 c. $9.13 d. $27.96 e. $34.41 =
Storico Company just paid a dividend of $2.10 per share. The company will increase its dividend by 20 percent next year and then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the stock price is $41.71, what required return must investors be demanding on the company's stock? (Hint: Set up the valuation formula with all the relevant cash flows, and use trial and error to find the unknown rate of return.)
Runtan Inc. has just paid an annual dividend of $0.45 per share. Analysts expect the firm's dividends to grow by 6% forever. Its stock price is $34.8 and its beta is 1. The risk-free rate is 2% and the expected return on the market portfolio is 8%. What is the best guess for the cost of equity?
Storico Co. just paid a dividend of $1.50 per share. The company will increase its dividend by 20 percent next year and will then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the stock price is $24.94, what required return must investors be demanding on Storico stock? (Hint: Set up the valuation formula with all the relevant cash flows, and use trial and error to find the unknown rate of return.)
The earnings of Eastern Corp. are expected to grow at an annual rate of 12% over the next 5 years and then slow to a constant rate of 8% per year. The company currently pays a dividend of $0.36 per share. What is the value of the company’s stock to an investor who requires a 14% rate of return? If the stock has a market price of $15, do you buy it ?
Banyan Co.’s common stock currently sells for $57.25 per share. The growth rate is a constant 6%, and the company has an expected dividend yield of 4%. The expected long-run dividend payout ratio is 40%, 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 your answer to two decimal places.
Burkhead Sales just paid an annual dividend of $0.70, and the dividend is expected to grow at a constant rate of 7.00% in the future. If the required return on Burkhead’s stock is 10.50%, what is the intrinsic price of the shares?
Southern Power just paid an annual dividend of $7.1 per share. Because of increasing competition from home solar installations, the dividend is expected to shrink by 3% per year. The required rate of return is 8%. What is the value of the stock?

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