What is the estimated cost of the common equity to the firm

Assignment Help Financial Management
Reference no: EM131014323

The common stock for the Hetterbrand Corporation sells for $ 60.23, and the last dividends paid was 2.35. five years ago the firm paid 1.88 per share and dividends are expected to grow at the same annual rate in the future as they did over the past five years.

a) What is the estimated cost of the common equity to the firm using the dividend growth model?

b) Hetterbrand CFO has asked his financial analyst to estimate the firm cost of common equity using the CAPM as a way of validating the earlier calculations. The risk free rate of interest is currently 4.3% the market risk premium is estimated to be 5.3% and Hetterbrand’s beta is .75. What is the estimate of the firm cost of common equity using this method?

Reference no: EM131014323

Questions Cloud

What is the price you would pay for stock now : Credenza Industries is expected to pay a dividend of $1.20 at the end of the coming year. It is expected to sell for $62.00 at the end of the year. If its equity cost of capital is 8%, what is the price you would pay for this stock now?
What is the importance of confidentiality in a group : What is the importance of confidentiality in a group? How can a counselor ensure confidentiality within and outside of the group format
Organizational behavior analysis : In this assignment you will analyze the organizational behavior of your current or former employer. Describe how the following areas influence the organizational behavior in a negative or positive manner:
Why is it important for substance use disorders counselors : Why is it important for substance use disorders counselors to know what happens in support groups? How could this knowledge benefit treatment
What is the estimated cost of the common equity to the firm : The common stock for the Hetterbrand Corporation sells for $ 60.23, and the last dividends paid was 2.35. five years ago the firm paid 1.88 per share and dividends are expected to grow at the same annual rate in the future as they did over the past f..
Moving averages and exponential smoothing : Explain why such forecasting devices as moving averages, weighted moving averages and exponential smoothing are not well suited for data series that have trends.
What is the exact limit of the sequence defined : What is the exact limit of the sequence defined in c)? Consider the following recursively defined sequence: a1 = 0.3; an+1 = √(an + 1) for n > 1.
How does cultural awareness affect counseling intervention : How does cultural awareness affect counseling intervention? Provide examples and evidence within your answer to justify your rationale
What should tax law and policy government make : write up in no more than 500 words what you think should be the first move in tax law and policy to be made by his government to start undoing the damage.

Reviews

Write a Review

Financial Management Questions & Answers

  What is the aftertax salvage value of the asset

An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,170,000 and will be sold for $1,370,000 at the end of the project. If the tax rate is 30 percent, what is the aftertax s..

  Project is expected to create operating cash flows

A project is expected to create operating cash flows of $33,000 a year for three years. The initial cost of the fixed assets is $68,000. These assets will be worthless at the end of the project. An additional $4,500 of net working capital will be req..

  Net present value of both new purchase and lease option

Proust Manufacturing Co. produces personal fitness machines. The once successful line is no longer selling well, so the company is considering production of a new improved cardio-vascular machine. This can be done by buying needed production equipmen..

  Analyse the finance costs of the respective sources

Identify the sources of short/medium and long term finances available to Citilink now and in near future. You may refer to Appendix I to support your findings, if needed.

  What will be the net present value of the project

A project generates an operating cash flow of $20,000 each year. Initially, this 4 year project required $4,000 in net working capital. All working capital will be recouped at the end of the project. What will be the Net Present Value of the project ..

  Computer-based order entry system-required return

Your firm is contemplating the purchase of a new 540,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five year life. It will be worth 48,000 at the end of that time. Suppose your required return on..

  About the save money to meet three objectives

Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $28,500 per month for 25 years, with the first payment received 30 years and 1 month from now. S

  Standard deviation and expected return

The stock of a technology company has an expected return of 15% and a standard deviation of 20% 10) The stock of a pharmaceutical company has an expected return of 13% and a standard deviation of 18%. A portfolio consisting of 50% invested in each st..

  Determining the firms appropriate debt-to-equity ratio

What are the 4 main criteria that a firm should consider when determining the firm’s appropriate debt-to-equity ratio? Is the ratio likely to change over time? How?

  Potential major corporate investments

The process of selecting among potential major corporate investments is called capital budgeting. The goal of the capital budgeting decisions is to select capital projects that will decrease the value of the firm.

  Compute macaulay and modi?ed duration for bond

Compute Macaulay and modi?ed duration for the following bond: In 8-year bond paying semi annual coupons with a coupon rate of 9% and a yield of 8%.

  Account that pays nominal interest rate

Suppose that on January 1 you deposit $100 in an account that pays a nominal (or quoted) interest rate of 11.33463%, with interest added (compounded) daily. How much will you have in your account on October 1, or 9 months later?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd