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 $38.75 The firm expects to pay a $3.31 dividend at the end of the year (2016). The dividends for the past 5 years are shown in the following table:
| Year |
Dividend per Share |
| 2015 |
$3.01 |
| 2014 |
$2.81 |
| 2013 |
$2.58 |
| 2012 |
$2.13 |
| 2011 |
$2.06 |
After underpricing and flotation costs, the firm expects to net $36.04 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
d. Using the constant-growth valuation model, determine the cost of new common stock