1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
ivolga24 [154]
3 years ago
8

Garcia Ltd. is trying to estimate its cost of common equity, and it has the following information. The firm has a beta of 0.90,

the before-tax cost of the firm's debt is 7.75%, and the firm estimates that the risk-free rate is 5% while the current market return is 13%. The firm pays dividends annually and expects dividends to grow at a constant rate of 5% indefinitely. The most recent dividend per share, paid yesterday, is $2.00. Currently, the firm's stock sells for $35.00 per share, but if the firm issues new shares, it will net $33.15 per share. Finally, the firm has a marginal tax rate of 34%. The cost of new common stock is ___________.
Business
1 answer:
Lady bird [3.3K]3 years ago
6 0

Answer:

Cost of common stock = 11.33%

Explanation:

<em>The cost of common stock can be determined using the dividend valuation model.</em>

<em>According to the dividend valuation, the value of a stock is the present value of expected future dividends discounted at the required rate of return</em>.

The model can me modified to determined the cost of equity having flotation cost as follows:

Cost of equity = D(1+r )/P(1-f) + g

d- dividend, p- price of stock , f - flotation cost , - g- growth rate  

Cost of common stock =

D- 2.00, g- 5%, Price net flotation cost = $33.15

Ke = 2.00 × (1.05)/33.15)  + 0.05 × 100

= 11.33%

Cost of common stock = 11.33%

You might be interested in
Where might someone in an urban forestry career work?
dsp73

Answer:

B

Explanation:

4 0
3 years ago
Read 2 more answers
Which of the following is an example of a capital market instrument? Group of answer choices Banker's acceptances. Commercial pa
stealth61 [152]

Answer:

Preferred stock

Explanation:

The capital market instruments refer to the instrument that involves stock, bonds, debentures, the preferred stock that deals in the securities and come under the capital

Also, the other options that are mentioned are the money market examples

Therefore the correct option is preferred stock and the same is to be considered

8 0
3 years ago
An ATM with a service fee of $3 is used by a person 200 times in a year. What would be the future value in 5 years (use a 2 perc
Eddi Din [679]

Answer:

The future value in 5 years is $3,184.87  

Explanation:

The figure is arrived by calculating the future of the yearly total service of $600($3*200) by using applicable annuity factor for each of the years from year 1 to 5.

The annuity factor for each year is calculated as (1+r)^n, where r is the rate of return of 2% and the n the year in which the service fee relates to.

Kindly find attached for detailed computations.

Download xlsx
6 0
3 years ago
Read 2 more answers
Are you able to get a free credit report once a year from each credit bureau
goldenfox [79]
Answer. You're entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies.
7 0
2 years ago
unlike other types of play, dramatic play is purely for fun and is not meant to be a learning experience. True or False
____ [38]

Answer:

false

Explanation:

you are always learning something

5 0
3 years ago
Other questions:
  • A survey of businesspeople from Argentina, Brazil, Chile, Columbia, and Venezuela found that the _____ market, on average, was m
    6·1 answer
  • As a proponent of the free market, Adam Smith viewed the main factors of production as labor, land, capital and entrepreneurship
    13·1 answer
  • Paul borrowed $90 from greg eight months ago. today, paul paid greg back $102.60. what is the simple annual interest rate that p
    7·1 answer
  • Cooke Corporation reports that at an activity level of 7,000 units, the total variable cost is $590,730, and the total fixed cos
    7·1 answer
  • The Fluffy Feather sells customized handbags. Currently, it sells 18,000 handbags annually at an average price of $89 each. It i
    13·1 answer
  • Starbucks sometimes offers a promotion known as the "treat receipt." Patrons purchase a drink of their choice in the morning and
    13·1 answer
  • Which will help you when you file a claim for home insurance??
    7·2 answers
  • Cone Corporation is in the process of preparing its December 31, 2021, balance sheet. There are some questions as to the proper
    15·1 answer
  • make price and output decisions without regard to what their competitors might do. have no perceptible influence on the market p
    14·1 answer
  • What best describes the difference between careers and industries
    9·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!