1reynolds textiles wants to measure its cost of common

Assignment Help Corporate Finance

Reference no: EM13380706

1.Reynolds Textiles wants to measure its cost of common equity. The firm's stock is currently selling for $57.50 per share. The firm expects to pay a $3.40 dividend at the end of 2011 (so assume that

D1 = $3.40 for purposes of calculation). The dividends for the last 5 years are as follows:
YearDividend
2010$3.10
2009$2.92
2008$2.60
2007$2.30
2006$2.12

After incurring flotation costs, Reynolds Textiles expects to net $52 per share on a new issue.

(a)Determine the growth rate of dividends (g).

First step:Divide the last dividend by the first dividend:

Second step: compute the Nth root of the above result, where N = the number of years of the growth period. In this question, compute the 5th root of 1.46

Third step: Subtract 1 from the second step outcome, and multiply the result by 100 to get the growth rate as a percentage:
(1.07863 - 1)100 = 7.863%

(b)By applying the constant-growth valuation model, determine the cost of retained earnings common equity (rs).

(c)By applying the constant-growth valuation model, determine the cost of newly-issued common equity (re).

Reference no: EM13380706

Questions Cloud

A firm has the following balance : a firm has the following balance sheetnbspnbspnbspnbspnbspnbspnbspnbspnbspnbspnbsp cash

Aaron athletics is trying to determine its optimal capital : aaron athletics is trying to determine its optimal capital structure. the companys capital structure consists of debt

Its time to decide how to use the money your firm is : its time to decide how to use the money your firm is expected to make this year.nbsp two investment opportunities are

You are provided the following information on a company the : you are provided the following information on a company. the total market value is 40 million. the companys capital

1reynolds textiles wants to measure its cost of common : 1.reynolds textiles wants to measure its cost of common equity. the firms stock is currently selling for 57.50 per

1 liquidity ratios edison stagg and thornton have the : 1. liquidity ratios. edison stagg and thornton have the following financial information at the close of business on

A perform a sensitivity analysis to see how npv is affected : a. perform a sensitivity analysis to see how npv is affected by changes in the number of procedures per day average

Ibm has generated annual dividend growth of 151 over the : ibm has generated annual dividend growth of 15.1 over the past 3 years. ibms most recent annual dividend is 2.90.

1 novelty gifts inc is experiencing some inventory control : 1. novelty gifts inc. is experiencing some inventory control problems. the managerwanda larue currently orders 5000

User Account

All Pages