Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The stock of Geo Company sells for $42.50, most recent dividend was $1.25. A flotation cost of 10% would be required to issue new common

image text in transcribed

The stock of Geo Company sells for $42.50, most recent dividend was $1.25. A flotation cost of 10% would be required to issue new common stock. Security analysts are projecting that the common dividend will grow at a rate of 7% a year. The yield on 10 year Govt. bond is 4.00% and 3-month T-bill is 2.00%. The beta for Geo's stock is 1.40 and the expected stock market return is 10.00%. The appropriate bond risk premium is 3.0% for the bond-yield-plus risk premium approach What is Geo's cost of equity from retained earnings using the CAPM approach? (Calculate up to two decimal places, enter answer without percentage sign e.g. 5.10)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Solutions Manual To Accompany Fundamentals Of Corporate Finance

Authors: Richard Brealey

6th Edition

0077265963, 978-0077265960

More Books

Students also viewed these Finance questions