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Determine the growth rate of dividends

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Ross Textiles wishes to measure its cost of common stock equity. The firm’s stock is currently selling for $57.50. The firm expects to pay a $3.40 dividend at the end of the year (2013). The dividends for the past 5 years are shown in the following table.

Year Dividend

2012 ...... $3.10

2011 ........ 2.92

2010 ........ 2.60

2009 ........ 2.30

2008 ........ 2.12

After underpricing and flotation costs, the firm expects to net $52 per share on a new issue.

a. Determine the growth rate of dividends from 2008 to 2012.

b. Determine the net proceeds, Nn, that the firm will actually receive.

c. Using the constant-growth valuation model, determine the cost of retained earnings, rr.

d. Using the constant-growth valuation model, determine the cost of new common stock, rn.

Reference no: EM131107354

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