Reference no: EM131177972
Cost of common stock equity, p. 385
Ross Textiles wishes to measure 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 (2016). The dividends for the past 5 years are shown in the following table.
Year Dividend
2015 3.10
2014 2.92
2013 2.60
2012 2.30
2011 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 2011 to 2015
b. Determine the net proceeds, Nn, that the firm will actually receive.
c. Using the constant-growth valuation model, determine the cost of retained earnings, Rr.
d. Using the constant-growth valuation model, determine the cost of new common stock, Rn
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