Magic Candy Co. expects to earn $4.75 per share during the current year, its expecteddividend payout ratio is 75%, its expected constant dividend growth rate is 5.0%, and itscommon stock currently sells for $50 per share. New stock can be sold to the public at thecurrent price, but a flotation cost of 4% would be incurred. What would be the cost of equityfrom new common stock?(Hint: Dividend Payout Ratio = Dividend Per Share / Earnings Per Share)O 12.42%O 13.75%12.52%12.79%12.13%

Step 1: Calculate the dividend per share (D1) for the next period.Dividend payout ratio = Dividend…

Answered: Magic Candy Co. expects to earn $4.75…

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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Franklin Corporation is expected to pay a dividend of $1.24 per share at the end of the year (D1 = $1.24). The stock sells for $32.40 per share, and its required rate of return is 7.2%. The dividend is expected to grow at some constant rate, g, forever. What is the equilibrium expected growth rate? (Round your answer to 2 decimal places.) Please work out the problem do not use excel.
Anle Corporation has a current price of $13, is expected to pay a dividend of $2 in one year, and its expected price right after paying that dividend is $22. What is Anle's expected dividend yield? (Round to two decimalplaces.) What is Anle's expected capital gain rate? (Round to two decimalplaces.) What is Anle's equity cost of capital? (Round to two decimalplaces.)
Abercrombie & Fitch's common stock pays a dividend of $3.00. It is currently selling for $30.78. If the firm's investors require a return of 15 percent on their investment from buying Abercrombie & Fitch stock, what growth rate would Abercrombie & Fitch have to provide the investors?
Anle Corporation has a current stock price of $21.99 and is expected to pay a dividend of $1.00 in one year. Its expected stock price right after paying that dividend is $23.92. a. What is Anle's equity cost of capital? b. How much of Anle's equity cost of capital is expected to be satisfied by dividend yield and how much by capital gain? a. What is Anle's equity cost of capital? Anle's equity cost of capital is ☐ %. (Round to two decimal places.)
Maynard Steel plans to pay a dividend of $2.82 this year. The company has an expected earnings growth rate of 3.9% per year and an equity cost of capital of 9.5%. a. Assuming that Maynard's dividend payout rate and expected growth rate remain constant, and that the firm does not issue or repurchase shares, estimate Maynard's share price. b. Suppose Maynard decides to pay a dividend of $0.95 this year and use the remaining $1.87 per share to repurchase shares. If Maynard's total payout rate remains constant, estimate Maynard's share price. a. Assuming that Maynard's dividend payout rate and expected growth rate remain constant, and that the firm does not issue or repurchase shares, estimate Maynard's share price. Maynard's share price will be $ (Round to the nearest cent.)
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?
Maynard Steel plans to pay a dividend of $3.18 this year. The company has an expected earnings growth rate of 4.5% per year and an equity cost of capital of 10.8%. a. Assuming that Maynard's dividend payout rate and expected growth rate remain constant, and that the firm does not issue or repurchase shares, estimate Maynard's share price. b. Suppose Maynard decides to pay a dividend of $1.08 this year and use the remaining $2.10 per share to repurchase shares. If Maynard's total payout rate remains constant, estimate Maynard's share price. a. Assuming that Maynard's dividend payout rate and expected growth rate remain constant, and that the firm does not issue or repurchase shares, estimate Maynard's share price. Maynard's share price will be $. (Round to the nearest cent.)
Assume Evco, Inc. has a current stock price of $49. 11 and will pay a $2.25 dividend in one year, its equity cost of capital is 18%. What price must you expect Evco stock to sell for immediately after the firm pays the dividend in one year to justify its current price? We can expect Evco stock to sell for $ ( Round to the nearest cent.)
Kirby Enterprises’s stock is currently selling for $32.45 per share, and the firm expects its per-share dividend to be $2.35 in one year. Analysts project the firm’s growth rate to be constant at 7.27%. Estimating the cost of equity using the discounted cash flow (or dividend growth) approach, what is Kirby’s cost of internal equity? 14.51% 13.78% 18.14% 19.59% Estimating growth rates It is often difficult to estimate the expected future dividend growth rate for use in estimating the cost of existing equity using the DCF or DG approach. In general, there are three available methods to generate such an estimate: • Carry forward a historical realized growth rate, and apply it to the future. • Locate and apply an expected future growth rate prepared and published by security analysts. • Use the retention growth model. Suppose Kirby is currently distributing 75% of its earnings in the form of cash dividends. It has also historically…
An all-equity firm has expected earnings of $14,200 and a market value of $82,271. The firm is planning to issue $15,000 of debt at 6.3 percent interest and use the proceeds to repurchase shares at their current market value. Ignore taxes. What will be the cost of equity after the repurchase?
Slow 'n Steady, Inc., has a stock price of $33, will pay a dividend next year of $2.90, and has expected dividend growth of 1.1% per year. What is your estimate of Slow 'n Steady's cost of equity capital? The required return (cost of capital) of levered equity is __ % ? (Round to one decimal place.)
Assume Coleco pays an annual dividend of $1.90 and has a share price of $38.00. It announces that its annual dividend will increase to $2.20. If its dividend yield is to stay the same, what should its new share price be? The new share price should be $ (Round to the nearest cent.)

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