Managerial Finance_Fall 2017_Section 1 (9.00-9:50 AM) Quiz: Quiz #4 Submit Quiz

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Managerial Finance_Fall 2017_Section 1 (9.00-9:50 AM) Quiz: Quiz #4 Submit Quiz This Question: 3 pts 130(15 (0 complete) This Quiz: 20 pts possible Cost of common stock equity Ross Textlies wishes to measure its cost of common dividend at the end of the year (2016). The dividends for the past 5 years are shown in the following table: (Click on the icon located on the top-right comer of the data table below in order to copy its contents into a spreadsheet) Year Dividend per Share 2015 2014 2013 2012 2011 $3.03 $2.72 $2.41 $2.18 $2.02 After underpricing and fiotation costs, the firm expects to net $48.28 per share on a new issue a. Determine the growth rate of dividends from 2011 to 2015. a. The growth rate of dividends from 2011 to 2015 is b. The net proceeds, N, the firm wil actually receive are S -(Round to two deci al places.) c. Using the oonstart-70 ith valuation model, the cost of retained earnings, 5, is % (Round to t o deci al places.) d. Using the constant-rowth valuation model, te cost of new oommon stock.-s( %. (Round to two decimal places.) % (Round to two decimal places.) le Enter your answer in each of the answer boxes. This course (Managerial Finance Fall 2017, Section 1900-9:50 AM) is based on Gmarauner Principles or Managerial Finance BRIEF 7e Type here to search

Explanation / Answer

a) Growth rate, g = (D5 / D1)^(1/4) = (3.03 / 2.02)^(1/4) - 1 = 10.67%

b) Net proceeds, N = $48.28

c) Cost of retained earnings = D1 / P + g = 3.35 / 53.05 + 10.67% = 16.98%

d) Cost of new common stock = D1 / N + g = 3.35 / 48.28 + 10.67% = 17.61%

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