Wouldnt the last answer be correct? As a member of the Finance Department of Ran

Question

Wouldnt the last answer be correct?

As a member of the Finance Department of Ranch Manufacturing, your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant. Under the assumption that the firm's present capital structure reflects the appropriate mix of capital sources for the firm, you have determined the market value of the firm's capital structure as follows: To finance the purchase, Ranch Manufacturing will sell 10-year bonds paying interest at a rate of 6.5 percent per year (with semiannual payment) at the market price of $1, 036. Preferred stock paying a $2.01 dividend can be sold for $25.36. Common stock for Ranch Manufacturing is currently selling for $55.84 per share and the firm paid a $3.09 dividend last year. Dividends are expected to continue growing at a rate of 5.4 percent per year into the indefinite future. If the firm's tax rate is 30 percent, what discount rate should you use to evaluate the equipment purchase? The weight of debt in the firm's capital structure is 35.66 %. (Round to two decimal places.) The weight of preferred stock in the firm's capital structure is 13.91 %. (Round to two decimal places.) The weight of common stock in the firm's capital structure is 50.43 %. (Round to two decimal places.) Calculate component costs of capital. The after-tax cost of debt for the firm is 4.2 %. (Round to two decimal places.) The cost of preferred stock for the firm is 7.93 %. (Round to two decimal places.) The cost of common equity for the firm is 10.631%. (Round to two decimal places.)

Explanation / Answer

No it would be, 11.23%, as You have to take dividend after growth that is dividend last declared * (1+Growth)/common stock price add this with growth you will come to Ke which will be 11.23%

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