Compute dsmns cost of internal equity capital

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Reference no: EM131337071

Del Sarto's Minuteman Novelties, Inc. (DSMN) expects its earnings to grow from a current (time 0) level of $2 per share to $4 per share over the coming year.

After that, earnings are expected to grow at 10 percent per year for five years. The current price of the stock of DSMN is $20 per share. The stock is expected to increase in value by 50 percent over the next three years.

DSMN's dividend policy is to pay out 50 percent of each year's earnings as dividends. DSMN's marginal tax rate is 40 percent and its average tax rate is 35 percent. Compute DSMN's cost of internal equity capital.

Reference no: EM131337071

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