A. The DJH Corporation just paid a dividend of $ 2.75 . It expects its cash divi

Question

A.  The DJH Corporation just paid a dividend of $ 2.75 . It expects its cash dividends to grow 6.0 % per year forever. DJH has a debt ratio of L = 43 %. Its borrowing rate is rd = 6.8 %. DJH pays corporate taxes at the rate of 37 %, rf = 4.3 %, rM = 11.5 %, and DJH's common stock is currently selling for $ 21 per share.  What is DJH's expected cost of stock? Show answer to the nearest .1% B.  The Corner Bakery has a debt-equity ratio of 0.62. The firm's required return on assets is 14.2 percent and its cost of equity is 16.1 percent. What is the pre-tax cost of debt based on M & M Proposition II with no taxes?
A.  The DJH Corporation just paid a dividend of $ 2.75 . It expects its cash dividends to grow 6.0 % per year forever. DJH has a debt ratio of L = 43 %. Its borrowing rate is rd = 6.8 %. DJH pays corporate taxes at the rate of 37 %, rf = 4.3 %, rM = 11.5 %, and DJH's common stock is currently selling for $ 21 per share.  What is DJH's expected cost of stock? Show answer to the nearest .1% B.  The Corner Bakery has a debt-equity ratio of 0.62. The firm's required return on assets is 14.2 percent and its cost of equity is 16.1 percent. What is the pre-tax cost of debt based on M & M Proposition II with no taxes?

Explanation / Answer

price of share = dividend/(cost of stock -growth rate )

21 = 2.75/(rs-0.06)

rs = 19.1%

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