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Posted: July 29th, 2024
Calculate the cost of new common equity financing of stock Q using Gordon Model
Q1. Calculate the
cost of new common equity financing of stock Q using Gordon Model.
Round the answers to two decimal places in percentage form.Last Year DividendGrowth Rate of DividendsSelling Price of StockFloatation CostsCost of Common EquityStock Q$2.322%$70.18$4.05?(Answer is 5.58%)Q2. Last year the
Black Water Inc. paid dividends $3.69. Companyâs dividends are expected to grow
at an annual rate of 2% forever. The
companyâs common stock is currently selling on the market of $79.37. The investments banker will charge floatation
costs $4.61per share. Calculate the
cost of common equity financing using Gordon Model.
Round the answers to two decimal places in percentage form.
(Answer 7.03%)Q3. Paul Sharp is CFO
of Fast Rocket Inc. He tries to
determine the cost of equity financing for his company. The stock has a beta of 2.49. Paul estimated that the market return is
6.88%. The current rate for 10-year
Treasury Bonds is 3.91%. Calculate cost of common equity financing using CAPM â
SML formula.
Round the answers to two decimal places in percentage form.
(Answer 11.31%)Q4. Nature Food Inc.
needs to estimate the cost of financing on preferred stock. The firm has preferred stock outstanding that
pays a constant dividend of $2.56 per year.
That preferred stock is currently selling for $86.66. However, the underwriter would charge
floatation costs of $2.82 per share.
What is the formâs cost of preferred stock financing?
Round the answers to two decimal places in percentage form.
(Answer 2.56%)Q5. The Yo-Yo
Corporation tries to determine the appropriate cost for retained earnings to be
used in capital budgeting analysis. The
firmâs beta is 2.04. The rate on six âmonth T-bills is 3.88%, and the return on
the S&P 500 index is 5.72%. What is
the appropriate cost for retained earnings in determining the firmâs cost of
capital?
Round the answers to two decimal places in percentage form.
(Answer is 7.63%)Q6. Heavy Rain
Corporation just paid a dividend of $4.72 per share, and the firm is expected
to experience constant growth of 5.22% over the foreseeable future. The common stock is currently selling for
$61.08 per share. What is Heavy Rainâs
cost of retained earnings using the Gordon Model (DDM) approach?
Round the answers to two decimal
places in percentage form.
(Answer 13.35%)
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