Estimate of the companys cost of equity

Assignment Help Financial Management
Reference no: EM13945355

Stock in Dragula Industries has a beta of 1.5. The market risk premium is 6 percent, and T-bills are currently yielding 4.70 percent. The company’s most recent dividend was $1.90 per share, and dividends are expected to grow at a 7.0 percent annual rate indefinitely. If the stock sells for $38 per share, what is your best estimate of the company’s cost of equity?

Reference no: EM13945355

Questions Cloud

Prepare a paper describing what office automation : Include an analysis of the advantages and disadvantages of each software used.
Write a letter of inquiry to a utility company : Write a letter of inquiry to a utility company, a safety or health care agency, or a company in your town, and ask for a brochure or an annual report describing its services to the community
How systematic theology relates to biblical theology : I need a little assistance in better understanding how systematic theology relates to three other well-known disciplines of theology: biblical theology, historical theology, and philosophical theology.
Alternative offering prices on the existing price per share : The Newton Company has 125,000 shares of stock that each sell for $70. Suppose the company issues 10,000 shares of new stock at the following prices: $70, $55, and $50. What is the effect of each of the alternative offering prices on the existing pri..
Estimate of the companys cost of equity : Stock in Dragula Industries has a beta of 1.5. The market risk premium is 6 percent, and T-bills are currently yielding 4.70 percent. The company’s most recent dividend was $1.90 per share, and dividends are expected to grow at a 7.0 percent annual r..
No debt but can borrow-tax rate : Chandeliers Corp. has no debt but can borrow at 6.4 percent. The firm’s WACC is currently 8.2 percent, and the tax rate is 35 percent. If the firm converts to 35 percent debt, what is the company’s WACC? If the firm converts to 50 percent debt, what ..
Which option is closest to the average rate of data transfer : if each uncompressed image is sent back to the control centre for processing, which option is closest to the average rate of data transfer?
An inelastic demand if people still continue to purchase : An item is said to have an inelastic demand if people still continue to purchase it at near their previous rate of purchase even with a price increase.  In other words, demand is not very responsive to price changes.  What is an item with inelastic d..
Financial goals of the company : Which of the following positions would be responsible for establishing the long-term financial goals of the company, investing its funds and raising capital for the business

Reviews

Write a Review

Financial Management Questions & Answers

  Evaluate generation project with the cash flows

Howell Petroleum, Inc., is trying to evaluate a generation project with the following cash flows: Year Cash Flow 0 –$36,000,000 1 53,500,000 2 –11,000,000 Required: (a) If the company requires a 12 percent return on its investments, what is the NPV o..

  What is the dollar amount of dividends

Lee purchased a stock one year ago for $28. The stock is now worth $34, and the total return to Lee for owning the stock was 0.36. What is the dollar amount of dividends that he received for owning the stock during the year?

  How marsden ltd could use bear spread to hedge its position

Describe how Marsden Ltd could use a bear spread to hedge its position. Assume the spot rate of the Canadian dollar in one month is £0.48. Was the hedge effective?

  The firms cost preferred stock financing

The Preferred stock of Gator industries sells for $34.55 and pays $2.74 per year in dividends. What is the cost of preferred stock financing? If Gator were to issue 469,000 more preferred shares just like ones it currently has outstanding, it could s..

  You are to select one business thatdoes not alreadyhave a

you are to select one business thatdoes not alreadyhave a websiteand develop an internet strategy for it. most large

  Estimated annual incremental after-tax net cash flows

Superior Machine Tool, Inc. (SMT) has a target debt-to-equity ratio of 1 to 3, or 0.33. (In other words, the company believes that 25 percent of its permanent capital structure should be in the form of long-term debt and 75 percent should be in the f..

  Find its current p and e ratio

Ider Corp expects to have $3.73 as earnings per share next year. The cost of equity for Ider is 16%, whereas its dividend yield is 4%. The price per share of Ider is $40. Find its current P/E ratio.

  What is the bonds ytm and bonds ytc

Mr. Greg is considering another bond, Bond D. It has an 8% semi-annual coupon and a $1,000 face value. Bond D is scheduled to mature in 9 years and has a price of $1,150. It is also callable in 5 years at a call price of $1,040. What is the bond’s YT..

  Calculate ensitivity of OCF to changes in the quantity sold

Consider a four-year project with the following information: initial fixed asset investment = $484680; straight-line depreciation to zero over the four-year life; zero salvage value; price = $33; variable costs = $23; fixed costs = $181848; quantity ..

  What is the fair price of investment

An investment pays $2,100 per year for the first 3 years, $4,200 per year for the next 8 years, and $6,300 per year the following 12 years (all payments are at the end of each year). If the discount rate is 8.75% compounding quarterly, what is the fa..

  Explain what the standard deviation of returns

Explain what the standard deviation of returns is and why it is especially useful in finance, and calculate it for an asset.

  What can sales reach before they need to add fixed assets

XYZ Company has sales of $4,800,000, COGS is 40% of sales, operating expenses are $2,100,000, interest expense $20,000 and depreciation 30,000. Tax rate 40%. XYZ is now evaluating the purchase of a new machine for $210,000 installed with no NWC chang..

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