Calculate cost of new common equity

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The Dempere Imports Company's EPS in 2011 was $3.00, and in 2006 tio was $1.80. The company's payout ratios 30% and the stock are currently valued at $41.50. Flotation costs for new equity will be 7%. Net income in 2012 is expected to be $15 million. The market-value weights of the firm's debt and equity are 40% adn 60%, respectively.

a. Based on the five-year track record, what is Dempere's EPS growth rate? What will the dividends be in 2012?
b. Calculate the firm's cost of retained earrings and the cost of new common equity.
c. Calculate the break-point associated with retained earnings.
d. If Dempere's after-tax cost of debt is 6%, what is the WACC with retained earnings, With new common equity?

Reference no: EM139678

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