Solve the following cases using the Gordon Growth Model of determining the cost of funds. (No Time Period given) 1. 12%, Preferred Shares P200 Market Value 350 Flotation Costs 6% Tax Rate 40% Cost of Preferred Shares ? 2. Current dividend on ordinary share P12 Growth Rate 10% Expected Dividend ?

Solve the following cases using the Gordon Growth Model of determining the cost of funds. (No Time Period given) 1. 12%, Preferred Shares P200 Market Value 350 Flotation Costs 6% Tax Rate 40% Cost of Preferred Shares ? 2. Current dividend on ordinary share P12 Growth Rate 10% Expected Dividend ?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.12: Uneven, Or Irregular, Cash Flows

Problem 3ST

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Question

Topic: Cost of Funds

Solve the following cases using the Gordon Growth Model of determining the cost of funds. (No Time Period given)

1. 12%, Preferred Shares P200

Market Value 350

Flotation Costs 6%

Tax Rate 40%

Cost of Preferred Shares ?

2. Current dividend on ordinary share P12

Growth Rate 10%

Expected Dividend ?

Definition Definition Type of stock which is granted priority over dividend distributions as compared to common stockholders. Preferred stocks also do not carry any voting rights. Notably, in a case where a company is going to be liquidated, preferred stockholders have a priority claim on the value of assets of the company as quoted in the balance sheet, as compared to the common stockholders.

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