Question 1.

Nature Food Inc. needs to estimate the cost of financing on preferred stock. The firm has preferred stock outstanding that pays a constant dividend of $4.35 per year. That preferred stock is currently selling for $85.01. However, the underwriter would charge flotation costs of $2.45 per share. What is the forms cost of preferred stock financing?

Answer 5.27%

Question 2

The Yo-Yo Corporation tries to determine the appropriate cost for retained earnings to be used in capital budgeting analysis. The firms beta is 1.03. The rate on six-month T-bills is 2.85%, and the return on the S&P 500 index is 6.79%. What is the appropriate cost for retained earnings in determining the firms cost of capital?

Answer 6.91%

Question 3

Heavy Rain Corporation just paid a dividend of $3.76 per share, and the firm is expected to experience constant growth of 3.41% over the foreseeable future. The common stock is currently selling for $64.49 per share. What is Heavy Rains cost of retained earnings using the Gordon Model (DDM) approach?

Answer 9.44%

Please explain with formula

Thank you