Tax cost of debt in computing firm cost of capital

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1. SRS, Inc. just paid an annual dividend of $2.58 last month. The required return is 12.1 percent and the dividend growth rate is expected to be constant at 2.6 percent. What is the expected value of this stock ten years from now? USE EXCEL AND SHOW HOW YOU GOT EACH FORMULA.

2. Why is the after-tax cost of debt more relevant compared to the nominal before-tax cost of debt in computing a firm’s cost of capital?

3. Reddit Corp. is expected to pay a dividend of $1.20 at the end of the coming year. It is expected to sell for $42.00 at the end of the year. If its equity cost of capital is 14%, what is the expected capital gain from the sale of the stock at the end of the coming year?

Reference no: EM132052891

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