Problen 10,16 (Cost of Common Equity) The Bouchard company's EPS was $5.90 in 2021, up from $3.47 in 2016. The company pays ! 60% of its earnings as dividends, and its common, out Stock sells for $38.00. a) Calculate the past growth rate in earnings. (Hind: This is a 5-year growth period.) Round your crowe to two decimal places. % 5) The last dividend was D₁ = 0.60 ($5.90) = $3.54, Calculate the next expected dividend, D₂, assuming that the past growth rate continues, found your answer to the nearest cent. $ ( What is Bouchard's cost of returned earnings, rs ? Round your answer to two decirnal places. 10
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
Step by step
Solved in 3 steps with 5 images
