Weaver Brothers expects to earn $3.50 per share (E1) and has an expected dividend payout ratio of 60%. Its expected constant dividend growth rate is 7.0% and its common stock currently sells for $30 per share. New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of equity from new common stock?Your answer should be between 10.15 and 16.90, rounded to 2 decimal places, with no special characters.

Weaver Brothers expects to earn $3.50 per share (E1) and has an expected dividend payout ratio of 60%. Its expected constant dividend growth rate is 7.0% and its common stock currently sells for $30 per share. New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of equity from new common stock?Your answer should be between 10.15 and 16.90, rounded to 2 decimal places, with no special characters.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter15: Distributions To Shareholders: Dividends And Repurchases

Section: Chapter Questions

Problem 3MC: Assume that IWT has completed its IPO and has a $112.5 million capital budget planned for the coming...

See similar textbooks

Similar questions

Weaver Chocolate Co. expects to earn $4.00 per share during the current year, its expected dividend payout ratio is 70%, its expected constant dividend growth rate is 6.0%, and its common stock currently sells for $45.00 per share. New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of equity from new common stock? Do not round your intermediate calculations. O a. 11.93% O b. 15.36% O c. 12.55% O d. 12.22% O e. 12.94%
I need help on this question ASAP: Langkasuka Holdings expects to pay an annual dividend of $1.50 per share, and stock analysts expect the dividend to grow by 7% indefinitely. If Langkasuka Holdings current share price is $25, what would the required rate of return be?
I am having issues with this problem and would like some help if possible: The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 5% per year. Callahan's common stock currently sells for $21.00 per share; its last dividend was $2.40; and it will pay a $2.52 dividend at the end of the current year. Using the DCF approach, what is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. % If the firm's beta is 1.4, the risk-free rate is 5%, and the average return on the market is 14%, what will be the firm's cost of common equity using the CAPM approach? Round your answer to two decimal places. % If the firm's bonds earn a return of 13%, based on the bond-yield-plus-risk-premium approach, what will be rs? Use the midpoint of the risk premium range discussed in Section 10-5 in your calculations. Round your answer to two decimal places. % If you have equal confidence in the…
You are told by your investment advisor that Ladumo Co. is expected to earn R5 per share next year, R6 per share the following year and that thereafter earnings are expected to grow by 8% per year. The dividend payout ratio is 60% and the required rate of return on Ladumo shares is 15%. If the current share price is R40, would you expect your advisor to make a buy, hold or sell recommendation? If transaction costs are R2.50 per share, would you follow his advice?
Magic Candy Co. expects to earn $4.75 per share during the current year, its expected dividend payout ratio is 75%, its expected constant dividend growth rate is 5.0%, and its common stock currently sells for $50 per share. New stock can be sold to the public at the current price, but a flotation cost of 4% would be incurred. What would be the cost of equity from new common stock? (Hint: Dividend Payout Ratio = Dividend Per Share / Earnings Per Share) O 12.42% O 13.75% 12.52% 12.79% 12.13%
You are told by your investment advisor that Laduma Co. is expected to earn R5 per share next year, R6 per share the following year and that thereafter earnings are expected to grow by 8% per year. The dividend payout ratio is 60% and the required rare or return on Laduma shares is 15%. If the current share price is R40, would you expect your adviser to make a buy, hold or sell recommendation? If transaction costs are R2,50 per share, would you follow his advice?
Ezra's Inc's next expected dividend is 2.40 per share. The growth rate of its dividends is expected to be 3.5% and its common stock is currently trading at 56 per share. The company thinks it can net 53.20 per share after flotation costs if it sells new shares of stock. What is the company's percentage flotation costs, F?
Franklin Co has a dividend payout ratio of 0.8 and reinvests the remainder of earnings in projects with expected return of 13%. If you expect next year's EPS (EPS1) to be $2.85and investors require a return of 8.1%, what is a fair price for the stock today? Round your answer to the nearest penny.
You are told by your investment advisor that Laduma Co. is expected to earn R5 per share next year, R6 per share the following year and that thereafter earnings are expected to grow by 8 percent per year. The dividend payout ratio is 60 percent and the required rate of return on Laduma shares is 15 percent. If the current share price is R40, would you expect your adviser to make a buy, hold or sell recommendation? If transaction costs are R2,50 per share, would you follow his advice? 16 D(1) = D (3) = P(T) = P(0) = Buy/sell: Net Procceed: Buy/sell:
You are told by your investment advisor that Laduma Co. is expected to earn R5 per share next year, R6 per share the following year and that thereafter earnings are expected to grow by 8 percent per year. The dividend payout ratio is 60 percent and the required rate of return on Laduma shares is 15 percent. If the current share price is R40, would you expect your adviser to make a buy, hold or sell recommendation? If transaction costs are R2,50 per share, would you follow his advice? required: D(1) = D (3) = P(T) = P(0) = Buy/sell: Net Procceed: Buy/sell:
Tanrun Inc. is expected to pay an annual dividend of $0.45 per share in one year. Analysts expect the firm's dividends to grow by 6% forever. Its stock price is $38.6 and its beta is 0.8. The risk-free rate is 2% and the expected market risk premium is 4.5%. 1. What is the best guess for the cost of equity? Recall that both Dividend Growth Model and CAPM can be used to find cost of equity. Here assume the best guess is the simple average of the two.
XYZ company's common shares are selling for P30.00 per share, and the company expects to set its next annual dividend at P1.50 per share. All future dividends are expected to grow by 6% per year, indefinitely. In addition, XYZ faces a floatation cost of 20% on new equity issues. What is the floatation-adjusted cost of equity? Express your answer in percentage.