Jarett & Sons's common stock currently trades at $29.00 a share. It is expected to pay an
Question:
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Jarett & Sons's common stock currently trades at $29.00 a share. It is expected to pay an annual dividend of $1.25 a share at the end of the year (D1= $1.25), and the constant growth rate is 6% a year.
a. What is the company's cost of common equity if all of its equity comes from retained earnings? Do not round intermediate calculations. Round your answer to two decimal places.
b. If the company issued new stock, it would incur a 12% flotation cost. What would be the cost of equity from new stock? Do not round intermediate calculations. Round your answer to two decimal places.%
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The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 6% per year. Callahan's common stock currently sells for $25.75 per share; its last dividend was $2.50; and it will pay a $2.65 dividend at the end of the current year.
a. Using the DCF approach, what is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. %
b. If the firm's beta is 0.6, the risk-free rate is 6%, and the average return on the market is 14%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places.%
c. If the firm's bonds earn a return of 12%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places. %
d. If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.%
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Palencia Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. Its before-tax cost of debt is 10%, and its marginal tax rate is 40%. The current stock price is P0= $23.50. The last dividend was D0= $2.50, and it is expected to grow at a 4% constant rate. What is its cost of common equity and its WACC? Do not round intermediate calculations. Round your answers to two decimal places.
a. rs=%
b. WACC =%
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Olsen Outfitters Inc. believes that its optimal capital structure consists of 55% common equity and 45% debt, and its tax rate is 40%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $2 million of retained earnings with a cost of rs= 11%. New common stock in an amount up to $8 million would have a cost of re= 13.0%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of rd= 9% and an additional $5 million of debt at rd= 12%. The CFO estimates that a proposed expansion would require an investment of $5.3 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places. %
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