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Question 4 (2 points) Listen XYZ currently has common stock trading at $40 per share. XYZ just paid a dividend of $2.00 per share, which
Question 4 (2 points) Listen XYZ currently has common stock trading at $40 per share. XYZ just paid a dividend of $2.00 per share, which is expected to grow at a constant rate of 5%. XYZ's beta is 1.5, the risk-free rate is 2%, and the market return is expected to be 8%. The pre-tax yield on XYZ's bonds is 7%. XYZ's finance department believes that new stock would require a premium of 5% over their own bond yield. Flotation cost for issuing new stock is 10% Compute the cost of retained earnings using the bond yield plus risk premium approach (show your answer in percent, and to 2 decimal places. Example: 9.62%). A Question 5 (2 points) Listen XYZ currently has common stock trading at $40 per share. XYZ just paid a dividend of $2.00 per share, which is expected to grow at a constant rate of 5%. XYZ's beta is 1.5, the risk-free rate is 2%, and the market return is expected to be 8%. The pre-tax yield on XYZ's bonds is 7%. XYZ's finance department believes that new stock would require a premium of 5% over their own bond yield. Flotation cost for issuing new stock is 10%. Compute the cost of new common stock using the discounted cash flow method (show your answer in percent, and to 2 decimal places. Example: 9.62%)
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