Calculate cost of equity using dividend growth model method

Assignment Help Financial Management
Reference no: EM131182006

Calculating the Cost of Equity-Laverne Industries stock has a beta of 1.35. The company just paid a dividend of $.85, and the dividends are expected to grow at 5 percent. The expected return of the market is 11.5 percent, and Treasury bills are yielding 5 percent. The most recent stock price is $83.50. Required: (a) Calculate the cost of equity using the dividend growth model method. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Cost of equity % (b) Calculate the cost of equity using the SML method. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).) Cost of equity %

Reference no: EM131182006

Questions Cloud

About the return distributions : Consider the following table for the total annual returns for a given period of time. Series Average return Standard Deviation Large-company stocks 11.7 % 20.6 % Small-company stocks 16.4 33.0 Long-term corporate bonds 6.3 9.6 Long-term government bo..
Calculate the arithmetic average returns for large-company : Consider the following table for a period of six years. Returns Year Large-Company Stocks U.S. Treasury Bills Year 1 – 15.09 % 7.37 % Year 2 – 26.59 8.03 Year 3 37.31 5.95 Year 4 24.01 5.47 Year 5 – 7.32 5.49 Year 6 6.65 7.76. Calculate the arithmeti..
Estimate of the cost of capital that tisa co : Provide a reasoned estimate of the cost of capital that Tisa Co should use to calculate the net present value of the two processes. Include all relevant calculations.
Prepare the draft report to the royal pets : The Royal Pets is currently in a cash crunch, although its sales and production have expanded considerably over the past 10 years. Prepare the draft report to The Royal Pets.
Calculate cost of equity using dividend growth model method : Calculating the Cost of Equity-Laverne Industries stock has a beta of 1.35. The company just paid a dividend of $.85, and the dividends are expected to grow at 5 percent. The expected return of the market is 11.5 percent, and Treasury bills are yield..
Paying semiannual coupons with a coupon rate : Compute Macaulay and modi?ed durations for the following bonds: a. a 5-year bond paying annual coupons of 3.322% and selling at par b. an 8-year bond paying semiannual coupons with a coupon rate of 9% and a yield of 8%
Methods of power measurement for the same circuit : Explain why there are variations between the theoretical and measured values of the tests. Explain why two different methods of power measurement for the same circuit gives different results
Produce higher level of employee commitment in position : Think about a job that you have held at some time in your lifetime. (If you have never worked, focus upon a position with which you are familiar). Apply the concepts of job enrichment to the position you held. How could these enrichment actions be le..
Berea amalgamated products company : Assignment: You work for the Berea Amalgamated Products Company that produces coloring books, velvet paintings and other fine arts. You are proposing a new venture, to branch out into figurine animals and cartoon characters but this will require ne..

Reviews

Write a Review

Financial Management Questions & Answers

  Dividend growth should normalize at a rate

ABC Corp. recently paid a dividend of $2. This dividend is expected to grow 10% per year for the next 3 years after which its dividend growth should normalize at a rate of 3% per annum. You estimate the company's cost of equity to be 10%. Given this,..

  Create a gantt chart

Create a Gantt chart that displays 36 months, using the Office Timeline tool or any other tool to produce a Gantt chart.

  Cost of capital for a firm with debt-equity split

The company cost of capital for a firm with a 65/35 debt/equity split, 8% cost of debt, 15% cost of equity, and a 35% tax rate would be:

  What is standard deviation of these returns

A stock had returns of 11 percent, -18 percent, -21 percent, 20 percent, and 34 percent over the past five years. What is the standard deviation of these returns?

  Consulting business-what is the nominal annual interest rate

An engineer plans to borrow $25000 to open his own consulting business. He must repay $500 a month for 5 years. What is the nominal annual interest rate (compounded annually)?

  Create journal entries

On Dec 7, Star Wars Inc. received ac check in the amount of $49,294 from C3PO Co. in full payment of a sales invoice dated Nov. 27 for $50,300. On Dec 10, Star Wars, Inc. received payment of $72,863 from Jabba's Huts, Inc. in full payment of an invoi..

  Split has no effect on the total market value

JPix management is considering a stock split. JPix currently sells for $110 per share, and a 3-for-1 stock split is contemplated. What will be the company's stock price following the stock split assuming that the split has no effect on the total mark..

  Determining the revised level payment

After the 12th reduced payment, the loan is renegotiated. The revised level payment P will yield the lender 4% per year over the remaining 7 years. Find P.

  Purchase a bond with a coupon rate

You purchase a bond with a coupon rate of 9.31 percent and a clean price of $1039.13. If the next semiannual coupon payment is due in 3 months, what is the invoice price?

  Formation of a new property

Management wants to avoid the expense of hiring and training agents to sell the new policy and wants to sell the insurance directly to the public by selective advertising in personal finance magazines.

  What is the monetary value of the bankruptcy costs

A company has a zero-coupon bond outstanding, with face value 1000 and a 2 year maturity. The bond is risky but bears no systematic risk. There are two equally likely scenarios at maturity: What is the monetary value of the bankruptcy costs at year 2..

  What is the equivalent uniform annual worth

Project A has a first cost of $3,500, annual operating and maintenance costs of $1,900, annual savings of $2,300, and a salvage value of $1,800 at the end of its 5 year useful life. What is the equivalent uniform annual worth (EUAW) of project A?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd