Please complete B,C, and D Cost of common stock equity Ross Textiles wishes to m

Question

Please complete B,C, and D

Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for $67.38. The firm expects to pay a $3.34 dividend at the end of the year (2016). The dividends for the past 5 years are shown in the following table: (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Year 2015 2014 2013 2012 2011 Dividend per Share 3.04 $2.82 $2.52 $2.12 $2.08 After underpricing and flotation costs, the fim expects to net $61.32 per share on a new issue. a netermine the north rate of dividends frnm 2n 11 tn 2n1 a. The growth rate of dividends from 2011 to 2015 is 9.95 %. (Round to two decimal places.) b. The net proceeds, Nn, the firm will actually receive are $ (Round to two decimal places.)

Explanation / Answer

Current selling price of stock 67.38 Dividend at the end of year 2016 3.34 a) Growth rate of dividend=(Dividend of Current Year-Dividend of Base Year)/Dividend of base year In 2011 NA In 2012=($2.12/2.08)-1 1.92% In 2013=($2.52/$2.12)-1 18.87% In 2014=($2.82/$2.52)-1 11.90% In 2015=($3.04/$2.82)-1 7.80% Total 40.50% Average=(40.50%/4) 10.12% b) The net proceeds firm will actually received =$61.32 c ) P0=D1/(r-g) D1=Next year Dividend r=Cost of equity capital g=dividend growth rate Current Selling Price= 67.38 g= 10.12% Dividend 2016 3.34 67.38=3.34/(r-10.12%) 67.38(r-10.12%)=3.34 67.38r-6.8188=3.34 67.38r=10.1588 r=10.1588/67.38 r=.150769 15.08% or (Dividend/Current Sellig Price)+g ($3.34/$67.38)+10.12% 15.08% d) Cost of new common stock issued (Dividend/Net Proceeds)+g ($3.34/$61.33)+10.12% 15.57%

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