Handy Handbags (HH) recently paid a dividend of $2.00 (D0), which is expected to grow at 7%. HH’s stock price is $23, its beta is 1.6, the yield on its bonds is 12%, and the risk premium on the company’s own stock is 5%. The risk-free rate is 6% and the market risk premium is 4%. Flotation costs will be 10% if Handy issues new common stock. Using the discounted cash flow method, compute the cost of retained earnings for HH: Question 13 options: 13.3% 18.4% 16.3% 15.7%

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Handy Handbags (HH) recently paid a dividend of $2.00 (D0), which is expected to grow at 7%.  HH’s stock price is $23, its beta is 1.6, the yield on its bonds is 12%, and the risk premium on the company’s own stock is 5%.  The risk-free rate is 6% and the market risk premium is 4%.  Flotation costs will be 10% if Handy issues new common stock.

Using the discounted cash flow method, compute the cost of retained earnings for HH:

 

Question 13 options:

 

13.3%

 

18.4%

 

16.3%

 

15.7%

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