You know that the return of Sandhill Cyclicals common shares is 1.6 times as sensitive to macroeconomic information as the retur
n of the market. If the risk-free rate of return is 4.10 percent and market risk premium is 5.71 percent, what is Sandhill Cyclicals’ cost of common equity capital?
1 answer:
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Answer:
price earning ratio = 19.44 times
so correct option is c. 19.44
Explanation:
given data
net income = $103,000
common stock outstanding beginning = 38,000 shares
common stock outstanding ending = 44,000 shares
preferred stock outstanding = 5,000 shares
paid preferred dividends = $29,000
common stock = $35.00 per share
market price preferred stock = $55.00 per share
to find out
Lark's price earnings ratio
solution
first we get here average no of equity share that is
average no of equity share = common stock outstanding beginning + common stock outstanding ending ÷ 2
average no of equity share =
average no of equity share = 41000 share
and
earning per share will be here as
earning per share = ( net income - paid preferred dividends ) ÷ average no of equity share
earning per share =
earning per share = $1.80
so here price earning ratio will be as
price earning ratio =
price earning ratio =
price earning ratio = 19.44 times
so correct option is c. 19.44