The MacBurger Company, a chain of fast-food restaurants, expects to earn $200 million after taxes for the

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The MacBurger Company, a chain of fast-food restaurants, expects to earn $200 million after taxes for the current year. The company has a policy of paying out half of its net after-tax income to the holders of the company’s 100 million shares of common stock. A share of common stock of the company currently sells for eight time’s current earnings. Management and outside analysts expect the growth rate of earnings and dividends for the company to be 7.5 percent per year. Calculate the cost of equity capital to this firm.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...
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Financial and Managerial Accounting the basis for business decisions

ISBN: 978-0078111044

16th edition

Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello

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