1. Use the following information about Delta Corporation common stock to find th
ID: 2794181 • Letter: 1
Question
1. Use the following information about Delta Corporation common stock to find the firm's cost of retained earnings. Show your work. a. Their common stock is currently selling for $42 per share and the dividend for this year (D) is $1.24. Assume that future dividends will grow at a 4% annual rate. b. Delta common stock has a beta of 1.3. Assume that the current risk free rate of interest is 1.2%, and the market rate of return is 6%. C. Assume that Delta bonds have a $1000 par value, a coupon rate of 5.4% and are currently selling for $970. Assume that the risk premium of stock over the firm's bonds is 1.6%Explanation / Answer
Cost of retained earnings ( r) D1÷P0+g Here, Stock price (P0) $ 42.00 Expected dividend (D1) $ 1.29 1.24*(1+4%) Growth rate (g) 4.00% Cost of retained earnings ( r) 7.07% $1.29/$42+4%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.