Question
Refer to Lancaster Engineering Inc. (LEI) information below, what is LEIs cost of common equity? (Hint: DCF method as illustrated on PowerPoint slide 10-18) (Note:
Refer to Lancaster Engineering Inc. (LEI) information below, what is LEIs cost of common equity? (Hint: DCF method as illustrated on PowerPoint slide 10-18) (Note: Keep your answer. There are two other related questions.)
Use the following information for the three questions referring to Lancaster Engineering Inc. (LEI):
Lancaster Engineering Inc. (LEI) has the following capital structure:
Debt 25%
Preferred stock 15%
Common Equity 60%
LEIs corporate income tax rate is 40%. Investors expect LEIs dividend to grow at a constant rate of 9% in the future. LEI has just paid a dividend of $3.60 per share (D0), and its common stock currently sells at a price of $54 per share. LEI can issue new preferred stock, with annual dividend of $11, at a price of $95 per share. LEI can also issue new corporate bond with yield to maturity, 12%.
A. | 6.67% | |
B. | 9.00% | |
C. | 15.67% | |
D. | 16.27% | |
E. | 7.27% |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started