What is the appropriate cost of equity

Assignment Help Financial Management
Reference no: EM131461969

You are looking to purchase some Sandy Olsson Corp. stock. You estimated that Sandy's beta is 1.3 and her tax rate is 30%. Currently the expected return on the market is 10% and the US T-bill is yielding 39%.

1. What is the appropriate cost of equity?

2. The stock is currently trading at $30 per share. Last week, the stock paid a dividend of $2. The dividends have been growing at 10% annually for the past 5 years. You expect this growth rate is not sustainable forever. You only expect this rate to continue for 5 years. Then the growth should taper down to 3% per year thereafter. Should you buy the stock? Why?

Reference no: EM131461969

Questions Cloud

How you would use each theory to motivate your employees : write a paper that describes how you would use each theory to motivate your employees. Be very detailed and support what you say with research.
The preferred methods of capital budgeting analysis : The net present value and internal rate of return are generally the preferred methods of capital budgeting analysis.
Creating a genogram is to understand : Creating a genogram is to understand and become acquainted with the foundation of a family
Solution must be used in preparation : How many mL of 0.500 M stock acid and 0.250 M NaOH base solution must be used in preparation of this buffer? Check both answers.
What is the appropriate cost of equity : You are looking to purchase some Sandy Olsson Corp. stock. You estimated that Sandy's beta is 1.3-her tax rate is 30%. What is the appropriate cost of equity?
Peak areas on a gas chromatogram : The ratio between the peak areas on a gas chromatogram most accurately reflects which of the following ratios between the two compounds?
Increase the speed of bottling and save money : The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money.
How can one discern a healthy family system : How can one discern a healthy family system? What are the determining factors that distinguish healthy family systems
How you plan to address need through entertainment-education : Develop a complete EE proposal that shows how you plan to address the need through an entertainment-education intervention.

Reviews

Write a Review

Financial Management Questions & Answers

  Costaguanan stock market provided rate of return

The Costaguanan stock market provided a rate of return of 99%. The inflation rate in Costaguana during the year was 84%. In the United States, in contrast, the stock market return was only 16%, but the inflation rate was only 2%. Calculate the real r..

  Equal annual payments that include principal payments plus

Mr. Bill. S. Preston, Esq., purchased a new house for $150,000. He paid $25,000 upfront and agreed to pay the rest over the next 10 years in 10 equal annual payments that include principal payments plus 14 percent compound interest on the unpaid bala..

  Is the expected outcome of a die throw a random variable

Is the expected outcome (value) of a die throw a random variable? -  Could it be that the expected value of a bet is a random variable?

  The bond is currently yielding-payments are made annually

What is the current price of a 20-year 6% coupon bond that has 5 years left until maturity? The bond is currently yielding 8.4%. Payments are made annually.

  If a shareholder works for the business

If a shareholder works for the business then he:

  Advisable to borrow money to take a cash discount

Under what circumstances would it be advisable to borrow money to take a cash discount? RESEARCH and find companies that offer cash discounts. What type of discount do they offer?

  The net present value of project cash inflows

The net present value of a project's cash inflows is $10,146 at a 11.6 percent discount rate. The profitability index is 2.2 and the firm's tax rate is 35 percent. What is the initial cost of the project?

  How many dollars do you need to invest in the cash account

Consider a 1-period binomial model with R=1.02, S0=100, u=1/d=1.05. 1.Compute the value of a European call option on the stock with strike K=102. The stock does not pay dividends. 2.When you construct the replicating portfolio for the option in the p..

  What was the operating cash flow

Last year, Webster Farms had annual revenue of $87,200, depreciation of $11,600, cost of goods sold of $54,700, and administrative expenses of $8,300. The firm paid $3,200 in dividends and paid taxes of $4,300. What was the operating cash flow?

  What is the current value of the stock

Nynet, Inc., paid a dividend of $3.99 last year. The company's management does not expect to increase its dividend in the foreseeable future. If the required rate of return is 17.0 percent, what is the current value of the stock?

  Constitue property tax relief measure

Which of the following does not constitue a property tax relief measure?

  What is the best estimate of the stocks current market value

Nachman Industries just paid a dividend of D0 = $1.75. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What..

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