Question 1

Cost of preferred stockTaylor Systems has just issued preferred stock. The stock has a 8% annual dividend and a $100 par value and was sold at $99.50 per share. Inaddition, flotation costs of $1.50 per share were paid. Calculate the cost of the preferred stock.

The cost of the preferred stock is ____________%. (Round to two decimalplaces.)

Question 2

Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. Thefirm's stock is currently selling for $70.67. The firm just recently paid a dividend of $4.00. The firm has been increasing dividends regularly. Five yearsago, the dividend was just $2.99.

After underpricing and flotationcosts, the firm expects to net $69.00 per share on a new issue.

a.Determine average annual dividend growth rate over the past 5 years. Using that growthrate, what dividend would you expect the company to pay nextyear?

b. Determine the netproceeds, Nn, that the firm will actually receive.

c.Using theconstant-growth valuationmodel, determine the required return on thecompany's stock, rs, which should equal the cost of retainedearnings, rr.

d.Using theconstant-growth valuationmodel, determine the cost of new commonstock, rn.

Question 3

Preferred dividendsAcura Labs Inc. has an outstanding issue of preferred stock with a par value of $40 and an 8% annual dividend.

a.What is the annual dollardividend? If it is paidquarterly, how much will be paid eachquarter?

b.If the preferred stock is noncumulative and the board of directors has passed the preferred dividend for the last 3 quarters, how much must be paid to preferred stockholders in the current quarter before dividends are paid to commonstockholders?

c.If the preferred stock is cumulative and the board of directors has passed the preferred dividend for the last 3 quarters, how much must be paid to preferred stockholders in the current quarter before dividends are paid to commonstockholders?

ALL ANSWERS ROUND TO THE NEAREST CENT.