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 $57.50. 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 $57.50. The firm expect to pay a $3.40 dividend at the end of the year (2016). The dividends for the past 5 years are shown in the following table.
Year | Dividend |
2015 | $3.10 |
2014 | 2.92 |
2013 | 2.60 |
2012 | 2.30 |
2011 | 2.12 |
After underpricing and flotation costs, the firm expects to net $52 per share on a new issue.
a. Determine the rowth rate of dividends from 2011 to 2015.
b. Determine the net Proceeds, Nn, that the firm will actually receive.
c. Using the constant-growth valuation model, determine the cost of retained earnings, rr.
d. Using the constant-growth valuation model, determine the cost of new common stock, rn.
I can't figure out how to determine the growth rate in part a without knowing what the required rate of return is. If I can manage to figure out part a I think I can manage to get through the rest, but it's not helpful that everywhere I've looked tells me to plug this, that, and the other thing into a calculator without telling me where I'm getting these numbers or how to do it without a calculator.
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