Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for $45.06. The firm just recently paid a dividend of $3.99. The firm has been increasing dividends regularly. Five years ago, the dividend was just $3.04. After underpricing and flotation costs, the firm expects to net $41.00 per share on a new issue. a. Determine average annual dividend growth rate over the past 5 years. Using that growth rate, what dividend would you expect the company to pay next year? b. Determine the net proceeds, N, that the firm will actually receive. c. Using the constant-growth valuation model, determine the required return on the company's stock, rs, which should equal the cost of retained earnings, rr. d. Using the constant-growth valuation model, determine the cost of new common stock, rn. a. The average annual dividend growth rate over the past 5 years is %. (Round to two decimal places.) (Round to two decimal places.) Using that growth rate, the dividend you expect the company to pay next year is $ b. The net proceeds, N, the firm will actually receive are $ . (Round to two decimal places.) c. Using the constant-growth valuation model, the cost of retained earnings, rs, is %. (Round to two decimal places.) d. Using the constant-growth valuation model, the cost of new common stock, r,, is ☐ %. (Round to two decimal places.)
Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for $45.06. The firm just recently paid a dividend of $3.99. The firm has been increasing dividends regularly. Five years ago, the dividend was just $3.04. After underpricing and flotation costs, the firm expects to net $41.00 per share on a new issue. a. Determine average annual dividend growth rate over the past 5 years. Using that growth rate, what dividend would you expect the company to pay next year? b. Determine the net proceeds, N, that the firm will actually receive. c. Using the constant-growth valuation model, determine the required return on the company's stock, rs, which should equal the cost of retained earnings, rr. d. Using the constant-growth valuation model, determine the cost of new common stock, rn. a. The average annual dividend growth rate over the past 5 years is %. (Round to two decimal places.) (Round to two decimal places.) Using that growth rate, the dividend you expect the company to pay next year is $ b. The net proceeds, N, the firm will actually receive are $ . (Round to two decimal places.) c. Using the constant-growth valuation model, the cost of retained earnings, rs, is %. (Round to two decimal places.) d. Using the constant-growth valuation model, the cost of new common stock, r,, is ☐ %. (Round to two decimal places.)
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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Transcribed Image Text:Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is
currently selling for $45.06. The firm just recently paid a dividend of $3.99. The firm has been increasing dividends
regularly. Five years ago, the dividend was just $3.04.
After underpricing and flotation costs, the firm expects to net $41.00 per share on a new issue.
a. Determine average annual dividend growth rate over the past 5 years. Using that growth rate, what dividend would
you expect the company to pay next year?
b. Determine the net proceeds, N, that the firm will actually receive.
c. Using the constant-growth valuation model, determine the required return on the company's stock, rs, which should
equal the cost of retained earnings, rr.
d. Using the constant-growth valuation model, determine the cost of new common stock, rn.
a. The average annual dividend growth rate over the past 5 years is
%. (Round to two decimal places.)
(Round to two decimal places.)
Using that growth rate, the dividend you expect the company to pay next year is $
b. The net proceeds, N, the firm will actually receive are $ . (Round to two decimal places.)
c. Using the constant-growth valuation model, the cost of retained earnings, rs, is %. (Round to two
decimal places.)
d. Using the constant-growth valuation model, the cost of new common stock, r,, is ☐ %. (Round to two
decimal places.)
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