Question: Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for $56.28. The firm expects to pay a $3.27 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
|
Dividend per Share
|
|
|
2015
|
?$2.982.98
|
|
2014
|
?$2.822.82
|
|
2013
|
?$2.462.46
|
|
2012
|
?$2.232.23
|
|
2011
|
?$2.05
|
After underpricing and flotation costs, the firm expects to net $51.78 per share on a new issue.
a. Determine the growth rate of dividends from 2011 to 2015.
b. Determine the net proceeds, Nn, that the firm will actually receive.
c. Using the constant-growth valuation model, determine the cost of retained earnings, r Subscript srs.
d. Using the constant-growth valuation model, determine the cost of new common stock, r Subscript nrn.