1) Fletcher\'s Publishing\'s stock currently trades at $45.50 per share. At the

Question

1) Fletcher's Publishing's stock currently trades at $45.50 per share. At the end of the year, Fletcher is expected to pay an annual dividend of $4.25 per share (D1 = $4.25), and the firm's dividend is expected to grow at a constant rate of 4% per year. What is the firm's cost of retained earnings (rs)?

A 12.79%

B 14.44%

C 13.89%

D 13.34%

E 13.67%

2) If Fletcher were to issue new common stock, the new shares could be sold at the current market price, but flotation costs would account for 5% of the proceeds. What is Fletcher's cost of new common stock (re)?

A 13.25

B 14.41

C 14.13

D 13.83%

E 12.91%

3) Fletcher has forecasted net income of $500 million and a capitial budget of $800 million for next year. Fletcher's target capital structure consists of 65% debt and 35% equity. The firm also plans to keep its dividend payout ratio fixed at 40%. What is the relevant cost of common equity to be used in calculating Fletcher's weighted average cost of capital (WACC) on the last dollar it raises?

A 13.25%

B 13.83%

C 14.41%

D 12.24%

E 13.34%

Explanation / Answer

1) E

45.5 = 4.4/(r-4%)

r=13.67%

2) D

45.5-0.05*45.5 = 43.225

4.25/43.225 +0.04 = 13.83%

3)D 12.24%

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.