9-10. (Growth rate in stock dividends and the cost of equity) In March of this past year, Manchester Electric (an electrical supply company operating throughout the south- eastern United States and a publicly held company) was evaluating the cost of equity capital for the firm. The firm's shares are selling for $45.00; it expects to pay an annual cash dividend of $4.50 a share next year, and the firm's investors anticipate an annual rate of return of 18 percent. a. If the firm is expected to provide a constant annual rate of growth in divi- dends, what rate of growth must the firm experience? b. If the risk-free rate of interest is 3 percent and the market risk premium is 6 percent, what must the firm's beta be to warrant an 18 percent expected rate of return on the firm's stock? 0738 9-11. (Individual or component costs of capital) Compute the costs for the following sources of financing: a. A $1,000 par value bond with a market price of $970 and a coupon interest rate of 10 percent. Flotation costs for a new issue would be approximately percent of market price. The bonds mature in 10 years, and the marginal cor- porate tax rate is 34 percent. b. A preferred stock selling for $100 with an annual dividend payment of $8. The flotation cost will be $9 per share. The company's marginal tax rate is 30 percent. c. Retained earnings totaling $4.8 million. The price of the common stock is $75C per share, and dividend per share was $9.80 last year. The dividend is not ex- pected to change in the future. d. New common stock for which the most recent dividend was $2.80. The com- pany's dividends per share should continue to increase at an 8 percent growth rate into the indefinite future. The market price of the stock is currently $53; however, flotation costs of $6 per share are expected if the new stock is issued