Question
Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for $52.22. The
Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for $52.22. The firm just recently paid a dividend of $4.07. The firm has been increasing dividends regularly. Five years ago, the dividend was just $3.02. After underpricing and flotation costs, the firm expects to net $47.52 per share on a new issue.
a.Determine average annual dividend growth rate over the past 5 years. Using that growth rate, what dividend would you expect the company to pay next year?
b. Determine the net proceeds, Nn, that the firm will actually receive.
c.Using the constant-growth valuation model, determine the required return on the company's stock, rs, which should equal the cost of retained earnings, rr.
d.Using the constant-growth valuation model, determine the cost of new common stock, rn.
a.The average annual dividend growth rate over the past 5 years is _________%. (Round to two decimal places.)
Using that growth rate, the dividend you expect the company to pay next year is $____________. (Round to two decimal places.)
b.The net proceeds, Nn, the firm will actually receive are $___________. (Round to two decimal places.)
c.Using the constant-growth valuation model, the cost of retained earnings, rs, is ___________%. (Round to two decimal places.)
d.Using the constant-growth valuation model, the cost of new common stock, rn, is ___________%. (Round to two decimal places.)
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