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slavikrds [6]
3 years ago
9

Suppose that Tan Lines' common shares sell for $20 per share, are expected to set their next annual dividend at $1.00 per share,

and that all future dividends are expected to grow by 5 percent per year, indefinitely. If Tan Lines faces a flotation cost of 10 percent on new equity issues, what will be the flotation-adjusted cost of equity
Business
1 answer:
Verizon [17]3 years ago
3 0

Answer:

Cost of equity = 10.6%

Explanation:

<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>

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

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

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

D-1.00, p - 20, f- 10%, g- 5%

Applying this to the question;

cost of equity - 1.00/(20×(1-0.1) )+ 0.05

= 10.6%

Cost of equity = 10.6%

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4 0
4 years ago
What is the source of energy during the energy investment phase of glycolysis?
Leno4ka [110]

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Explanation:

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8 0
4 years ago
Denise has $13,424 in a savings account with the District 113 Teacher's Credit Union. While economic conditions have caused the
coldgirl [10]

Answer:

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$20 paid for the month

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7 0
3 years ago
What human relations skills is most clearly related to communication?
Wewaii [24]
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4 0
3 years ago
Cold Ice has a profit margin of 8.3 percent and a payout ratio of 42 percent. The firm has annual sales of $386,400, current lia
erastova [34]

Answer:

The internal growth rate is 4.36%

Explanation:

net income = 8.3%*386,400

                   = $32,071.20

net working capital = current assets – current liabilities

current assets – 37200 = 16700

                                        = $53,900

total assets = current assets + net fixed assets

                   = 53,900 + 391,500    

                   = 445,400

Then:

ROA = 53,900/445400

        = 0.072005

b = 1 - 48% = 0.52

internal growth rate = 0.072005*0.52/1 - (0.072005*0.52)

                                 = 0.041763/0.958237

                                 = 4.36%

Therefore, The internal growth rate is 4.36%

7 0
4 years ago
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