Ross Textiles wishes to measur

e its cost of common stock equity. The firms stock is currently selling for

$57.50. The firm expects to pay a $3.40 dividend at the end of the year (2013). The dividends for the past 5

years are shown in the following table.

Year

Dividend

2012

$3.10

2011

2.92

2010

2.60

2009

2.30

2008

2.12

After underpricing and flotation costs, the firm expects to net $52 per share on a new issue.

a.

Determine the growth rate of dividends from 2008 to 2012.

b.

Determine the net proceeds, N

n

, that the firm will a

ctually receive.

c.

Using the constant

-

growth valuation model, determine the cost of retained earnings, r

r

d.

Using the constant

-

growth valuation model, determine the cost of new common stock, r

n