To help them estimate the company's cost of capital, Smithco has hired you as aconsultant. You have been provided with the following data about the company'sstock: D1 $1.45; PO = $25; and g = 6.50% (constant). What is the cost of commonfrom issuing new stock, assuming the flotation cost is 10% of the stock price?=13.59%11.10%12.94%11.68%12.30%

Expected Dividend = d1 = $1.45Current Price of Stock = p0 = $25Growth Rate = g = 6.50%Flotation Cost…

Answered: To help them estimate the company's…

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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You are considering purchasing the preferred stock of a firm but are concerned about its capacity to pay the dividend. To help allay that fear, you compute the times-preferred-dividend-earned ratio for the past three years from the following data taken from the firm’s financial statements: Year 20X1 20X2 20X3 Operating income $ 14,000,000 $ 13,000,000 $ 13,000,000 Interest 4,600,000 3,200,000 4,600,000 Taxes 3,700,000 5,100,000 3,900,000 Preferred dividends 1,200,000 1,200,000 1,500,000 Common dividends 2,100,000 3,100,000 — Round your answers to two decimal places. 20X1: 20X2: 20X3: What does your analysis indicate about the firm’s capacity to pay preferred stock dividends? Times preferred dividend earned has each year, which indicates the firm's capacity to pay the dividend has .
Alpha Ltd wishes to know its overall cost of capital and the management has come to you for assistance on how to compute the component costs. Advice i) The company has an issue of preferred stock with a sh. 5 stated dividend that just sold for sh. 87 per share. ii)The company has just issued a dividend sh. 2.60 per share on its common stock. The company is expected to maintain a constant 6% growth rate in its dividends indefinitely. If the stock sells for sh. 60 a share, what is the cost of equity?
3.4-3.5 Corporation B's stock is expected to pay a dividend of $5 per share at t=1. Its equity cost of capital is 8%.- 3.4 You conduct a research on Corporation B's business and conclude that its dividend will grow 3% every year in the future. What should be the value of this stock at t=0 based on your conclusion? 3.5 Say the market price of the stock at t=0 is $90. What is the implied dividend growth rate?
Big Industries has the following market-value balance sheet. The stock currently sells for $20 a share, and there are 1,260 shares outstanding. The firm will either pay a $1 per share dividend or repurchase $1,260 worth of stock. Ignore taxes. Liabilities and Assets Equity $ 7,200 Fixed assets 29,300 Debt $11,300 25,200 Cash Equity a. What will be the subsequent price per share if the firm pays a dividend? b. What will be the subsequent price per share if the firm repurchases stock? (Round your answer to the nearest dollar.) c. If total earnings of the firm are $25,500 a year, find earnings per share if the firm pays a dividend. (Do not round intermediate calculations. Round your answer to 3 decimal places.) d. If total earnings of the firm are $25,500 a year, now find earnings per share if the firm repurchases stock. (Do not round intermediate calculations. Round your answer to 3 decimal places.) e. If total earnings of the firm are $25,500 a year, find the price-earnings ratio if the…
The Turnip Company plans to issue preferred stock. Currently, the company’s stock sells for $110. Once new stock is issued, the Turnip Company would receive only $90. The dividend rate is 8%, and the par value of the stock is $100. Compute the cost of capital of the stock to your firm. Show all work.
A firm has 7,000 outstanding shares with current value of 10£ per share. Planned dividend is £5 per share. What is the ex-dividend share price? How much is the share price if the company decides to use the cash it had originally earmarked for dividend for a share repurchase instead? A. £5, £10 B. £10, £5 C. £8, £10 D. £2, £12 ( explain well with step by step answer ).
Jiffy Wax Corp. can sell common stock for $ 15 per share and its investors require a 14% return. However, the administrative or flotation costs associated with selling the stock amount to $ 2.40 per share. What is the cost of capital for Jiffy Wax if the corporation raises money by selling common stock? Select one: a. 14.00% b. 21.50% C 30.00% d. 16.67%
Find cost of equity if the last dividend paid was $4.00 per share (Do). Current stock price is $32.00. Required return to shareholders is 7%. Return on Equity is 12% and dividend retention ratio is 30%.
Prepare two estimates of Pearson’s cost of common equity using the dividend growth model where you use growth rates in dividends that are 25% lower than the estimated 6.25% and growth rates in dividends that are 25% greater than the estimated 6.25%. The current dividend is R0.49 per share and the price of common stock is R19.39.
A- Operating Income ($) Interest Equity earning ($) Earnings Per share ($) Return on share (%)
Anle Corporation has a current stock price of $19.63 and is expected to pay a dividend of $0.75 in one year. Its expected stock price right after paying that dividend is $21.45. 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?
man.3 Imagine you are a CFO of a company that is publicly traded in stock exchange and has one of the smallest market capitalisations among all the companies available at the stock market. Assume that a risk-free rate is 2%, average return on broadly defined stock index is 12% and according to your computations the company has a market beta of 1.5. Estimate the cost of equity capital for your company and discuss, in the light of the empirical findings on the performance of CAPM and the existing anomalies, the quality of your investment decisions when using this value for the purpose of project evaluation. The expected return on the firm's equity is:

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