A firm has ordinary shares with a current market price of $40 per share and an...

 

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A firm has ordinary shares with a current market price of $40 per share and an expected dividend of $2.43 per share at the end of the coming year. The dividends paid on the outstanding shares over the past five years are as follows: Year 1: $2.00 Year 2: $2.08 Year 3: $2.16 Year 4: $2.25 Year 5: $2.34 Future dividends are expected to grow at the same rate as the past growth in dividends. The firm expects to sell new shares for $40 minus $2 per share representing the underpricing needed to sell the shares. Also, flotation costs are expected to total $2 per share. The cost of the firm's ordinary share equity is A firm has ordinary shares with a current market price of $40 per share and an expected dividend of $2.43 per share at the end of the coming year. The dividends paid on the outstanding shares over the past five years are as follows: Year 1: $2.00 Year 2: $2.08 Year 3: $2.16 Year 4: $2.25 Year 5: $2.34 Future dividends are expected to grow at the same rate as the past growth in dividends. The firm expects to sell new shares for $40 minus $2 per share representing the underpricing needed to sell the shares. Also, flotation costs are expected to total $2 per share. The cost of the firm's ordinary share equity is

Answer rating: 100% (QA)

To calculate the cost of the firms ordinary share equity we can use the Gordon Growth Model als... View the full answer