Cost of retained earnings common equity, Finance Basics

Clemson Software is considering a new project whose data are shown below. The required equipment has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 3 years. Revenues and other operating  costs are expected to be constant over the project's 3-year life. What is the project's Year 1 cash flow?

Equipment cost (depreciable basis) $65,000
Straight-line depreciation rate 33.333%
Sales revenues, each year $60,000
Operating costs (excl. deprec.) $25,000
Tax rate 35.0%

Year 1 Cash Flows = ____________________.

3b. Weaver Chocolate Co. expects to earn $3.50 per share during the current year, its expected dividend payout ratio is 65%, its expected constant dividend growth rate is 6.0%, and its common stock currently sells for $32.50 per share. New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of retained earnings common equity (rs) for Weaver Chocolate Co.? What would be the cost of equity from new common stock (re)?

Cost of Retained Earnings Common Equity (rs) = ____________________.

Cost of Newly Issued Common Stock (re) = ____________________.

Posted Date: 4/1/2013 3:37:24 AM | Location : United States







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