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1. A firm has common stock with a market price of $100 per share and an expected dividend of $5.80 per share at the end
1. A firm has common stock with a market price of $100 per share and an expected dividend of $5.80 per share at the end of the coming year. A new issue of stock is expected to be sold for $96, with $4 per share representing the underpricing necessary in the competitive capital market. Flotation costs are expected to total $2 per share. The dividends paid on the outstanding stock over the past five years are as follows: Year 1 2 3 4 5 Dividend $4.00 4.28 4.58 4.90 5.24 The cost of this new issue of common stock is 2. Given that the cost of common stock is 17 percent, dividends are $1.50 per share and the price of the stock is $12.50 per share, what is the annual growth rate of dividends? 3. What would be the cost of new common stock equity for Tangshan Mining if the firm just paid a dividend of $4.25, the stock price is $55.00, dividends are expected to grow at 8.5 percent indefinitely, and flotation costs are $4.75 per share? 4. A firm has a beta of 1.5. The market return equals 16 percent and the risk-free rate of return equals 6 percent. The estimated cost of common stock equity is
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