The stock of Alpha Tool sells for $81.20 per share. Its current dividend rate, D 0 ,
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The stock of Alpha Tool sells for $81.20 per share. Its current dividend rate, D0, is $3 per share. Analysts and investors expect Alpha to increase its dividends at a 20 percent rate for each of the next 2 years. This annual dividend growth rate is expected to decline to 17 percent for years 3 and 4 and then to settle down to 13 percent per year forever. Calculate the cost of internal equity for Alpha Tool. Use Table II for your calculations.
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TABLE II Present Value Interest Factor (PVIF) ($1 at i % per period for a periods); 1 PVIF PV = FV,(PVIF;,n) (1+i)" 1% 7% 8% 9% 10% 1.000 1.000 0.917 0.909 0.857 0.842 0.826 0.794 0.772 0.751 0.961 0.735 0.708 0.683 0.621 0.593 0.567 0.535 0.507 0.871 0.813 0.452 0.404 0.914 11 12 2% 3% 4% 5% 6% 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.924 0.889 0.855 0.823 0.792 0.763 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.888 0.838 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.513 0.436 0.371 0.317 0.198 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.475 0.396 0.331 0.276 0.232 0.194 0.164 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.390 0.310 0.247 0.197 0.158 0.126 0.102 0.082 0.066 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.308 0.231 0.174 0.131 0.208 0.142 0.097 0.067 0.141 0.087 0.054 0.034 0.095 0.054 0.030 0.017 15 0.853 0.789 0.837 0.766 0.905 0.820 0.744 0.896 0.804 0.722 0.887 0.788 0.701 13 0.879 0.773 0.681 14 0.870 0.758 0.661 0.861 0.743 0.642 0.853 0.728 0.623 17 0.844 0.714 0.605 0.836 0.700 0.587 0.828 0.686 0.570 0.820 0.673 0.554 0.788 0.622 0.492 0.780 0.610 0.478 0.742 0.552 0.412 40 0.672 0.453 0.307 0.608 0.372 0.228 0.550 0.305 0.170 16 0.270 0.231 0.138 0.124 0.104 0.059 0.044 0.099 0.075 0.057 0.046 0.032 0.022 0.015 0.009 0.005 0.003 0.002 0.001 Period, n 0 1 2 3 4 5 6 7 8 9 10 # 18 19 20 24 25 30 0 50 60 0 1 Period, n 14% 2 3 4 5 6 7 0.951 0.942 8 9 0.933 0.923 15% 16% 1.000 1.000 0.870 0.862 0.756 0.743 0.658 0.641 0.572 0.552 0.519 0.497 0.476 0.456 0.432 0.410 0.400 0.376 0.354 0.351 0.327 0.305 0.308 0.284 0.263 1.000 0.877 0.769 0.675 0.592 10 0.270 0.247 0.227 11 0.237 0.215 0.195 0.208 0.187 0.168 13 0.182 0.163 0.145 12 14 15 16 17 18 19 20 24 25 30 40 50 0.001 60 0.160 0.141 0.140 0.123 0.123 0.107 0.108 0.093 0.125 0.108 0.093 0.084 0.081 0.071 0.060 0.080 0.069 0.081 0.069 0.059 0.051 0.095 0.083 0.073 0.061 0.051 0.070 0.060 0.051 0.043 0.043 0.035 0.028 0.021 0.013 0.010 20% 1.000 1.000 1.000 18% 19% 17% 1.000 0.855 0.847 0.840 0.833 0.731 0.718 0.706 0.694 0.624 0.609 0.593 0.499 0.437 0.419 0.402 0.534 0.516 0.456 0.390 0.370 0.352 0.335 0.333 0.314 0.296 0.279 0.285 0.266 0.249 0.233 0.243 0.225 0.209 0.194 0.208 0.191 0.176 0.162 0.178 0.162 0.148 0.135 0.152 0.137 0.124 0.130 0.116 0.104 0.111 0.099 0.088 0.095 0.038 0.030 0.020 0.015 0.043 0.023 0.074 0.062 0.052 0.044 0.037 0.112 0.093 0.078 0.065 0.579 0.482 0.423 0.341 0.275 0.222 0.054 0.045 0.037 0.031 0.019 0.015 0.024 0.020 0.016 0.013 0.010 0.005 0.004 0.005 0.004 0.001 0.001 0.001 0.012 0.009 0.007 0.003 0.002 0.001 0.001 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.038 0.031 0.026 0.013 0.006 0.003 0.000 0.000 0.000 24% 1.000 0.806 0.650 0.524 0.179 0.144 0.116 0.094 0.076 0.061 0.049 0.040 0.021 0.017 0.014 0.006 0.005 0.002 0.000 0.000 0.000 11% 12% 1.000 1.000 0.901 0.893 0.797 0.712 0.636 0.812 0.731 0.659 0.391 0.352 0.317 0.286 28% 32% 1.000 1.000 0.781 0.758 0.610 0.574 0.477 0.435 0.258 0.229 0.232 0.205 0.209 0.183 0.188 0.163 0.373 0.291 0.227 0.189 0.178 0.143 0.139 0.108 0.108 0.082 0.000 0.000 0.000 0.170 0.146 0.153 0.130 0.116 0.329 0.250 0.085 0.062 0.066 0.047 0.052 0.036 0.040 0.027 0.046 0.034 0.025 0.018 0.032 0.021 0.014 0.025 0.016 0.010 0.032 0.019 0.012 0.007 0.026 0.015 0.009 0.005 0.012 0.007 0.009 0.005 0.007 0.004 0.003 0.001 0.361 0.322 0.002 0.001 0.001 0.000 0.287 0.257 0.000 0.000 0.000 0.033 0.011 36% 1.000 0.735 0.541 0.398 0.292 0.215 0.085 0.063 13% 1.000 0.885 0.004 0.003 0.783 0.693 0.613 0.543 0.480 0.425 0.376 0.333 0.295 0.261 0.231 0.204 0.181 0.160 0.141 0.125 0.111 0.098 0.087 0.053 0.047 0.026 0.008 0.002 0.001 0.158 0.133 0.116 0.095 40% 1.000 0.714 0.510 0.364 0.260 0.186 0.068 0.048 0.035 0.025 0.018 0.013 0.009 0.006 0.005 0.003 0.002 0.002 0.002 0.001 0.000 0.000 0.000 0.000 0.001 0.000 0.000 0.000 0.000 0.000 0.000 0.000 TABLE II Present Value Interest Factor (PVIF) ($1 at i % per period for a periods); 1 PVIF PV = FV,(PVIF;,n) (1+i)" 1% 7% 8% 9% 10% 1.000 1.000 0.917 0.909 0.857 0.842 0.826 0.794 0.772 0.751 0.961 0.735 0.708 0.683 0.621 0.593 0.567 0.535 0.507 0.871 0.813 0.452 0.404 0.914 11 12 2% 3% 4% 5% 6% 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.924 0.889 0.855 0.823 0.792 0.763 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.888 0.838 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.513 0.436 0.371 0.317 0.198 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.475 0.396 0.331 0.276 0.232 0.194 0.164 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.390 0.310 0.247 0.197 0.158 0.126 0.102 0.082 0.066 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.308 0.231 0.174 0.131 0.208 0.142 0.097 0.067 0.141 0.087 0.054 0.034 0.095 0.054 0.030 0.017 15 0.853 0.789 0.837 0.766 0.905 0.820 0.744 0.896 0.804 0.722 0.887 0.788 0.701 13 0.879 0.773 0.681 14 0.870 0.758 0.661 0.861 0.743 0.642 0.853 0.728 0.623 17 0.844 0.714 0.605 0.836 0.700 0.587 0.828 0.686 0.570 0.820 0.673 0.554 0.788 0.622 0.492 0.780 0.610 0.478 0.742 0.552 0.412 40 0.672 0.453 0.307 0.608 0.372 0.228 0.550 0.305 0.170 16 0.270 0.231 0.138 0.124 0.104 0.059 0.044 0.099 0.075 0.057 0.046 0.032 0.022 0.015 0.009 0.005 0.003 0.002 0.001 Period, n 0 1 2 3 4 5 6 7 8 9 10 # 18 19 20 24 25 30 0 50 60 0 1 Period, n 14% 2 3 4 5 6 7 0.951 0.942 8 9 0.933 0.923 15% 16% 1.000 1.000 0.870 0.862 0.756 0.743 0.658 0.641 0.572 0.552 0.519 0.497 0.476 0.456 0.432 0.410 0.400 0.376 0.354 0.351 0.327 0.305 0.308 0.284 0.263 1.000 0.877 0.769 0.675 0.592 10 0.270 0.247 0.227 11 0.237 0.215 0.195 0.208 0.187 0.168 13 0.182 0.163 0.145 12 14 15 16 17 18 19 20 24 25 30 40 50 0.001 60 0.160 0.141 0.140 0.123 0.123 0.107 0.108 0.093 0.125 0.108 0.093 0.084 0.081 0.071 0.060 0.080 0.069 0.081 0.069 0.059 0.051 0.095 0.083 0.073 0.061 0.051 0.070 0.060 0.051 0.043 0.043 0.035 0.028 0.021 0.013 0.010 20% 1.000 1.000 1.000 18% 19% 17% 1.000 0.855 0.847 0.840 0.833 0.731 0.718 0.706 0.694 0.624 0.609 0.593 0.499 0.437 0.419 0.402 0.534 0.516 0.456 0.390 0.370 0.352 0.335 0.333 0.314 0.296 0.279 0.285 0.266 0.249 0.233 0.243 0.225 0.209 0.194 0.208 0.191 0.176 0.162 0.178 0.162 0.148 0.135 0.152 0.137 0.124 0.130 0.116 0.104 0.111 0.099 0.088 0.095 0.038 0.030 0.020 0.015 0.043 0.023 0.074 0.062 0.052 0.044 0.037 0.112 0.093 0.078 0.065 0.579 0.482 0.423 0.341 0.275 0.222 0.054 0.045 0.037 0.031 0.019 0.015 0.024 0.020 0.016 0.013 0.010 0.005 0.004 0.005 0.004 0.001 0.001 0.001 0.012 0.009 0.007 0.003 0.002 0.001 0.001 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.038 0.031 0.026 0.013 0.006 0.003 0.000 0.000 0.000 24% 1.000 0.806 0.650 0.524 0.179 0.144 0.116 0.094 0.076 0.061 0.049 0.040 0.021 0.017 0.014 0.006 0.005 0.002 0.000 0.000 0.000 11% 12% 1.000 1.000 0.901 0.893 0.797 0.712 0.636 0.812 0.731 0.659 0.391 0.352 0.317 0.286 28% 32% 1.000 1.000 0.781 0.758 0.610 0.574 0.477 0.435 0.258 0.229 0.232 0.205 0.209 0.183 0.188 0.163 0.373 0.291 0.227 0.189 0.178 0.143 0.139 0.108 0.108 0.082 0.000 0.000 0.000 0.170 0.146 0.153 0.130 0.116 0.329 0.250 0.085 0.062 0.066 0.047 0.052 0.036 0.040 0.027 0.046 0.034 0.025 0.018 0.032 0.021 0.014 0.025 0.016 0.010 0.032 0.019 0.012 0.007 0.026 0.015 0.009 0.005 0.012 0.007 0.009 0.005 0.007 0.004 0.003 0.001 0.361 0.322 0.002 0.001 0.001 0.000 0.287 0.257 0.000 0.000 0.000 0.033 0.011 36% 1.000 0.735 0.541 0.398 0.292 0.215 0.085 0.063 13% 1.000 0.885 0.004 0.003 0.783 0.693 0.613 0.543 0.480 0.425 0.376 0.333 0.295 0.261 0.231 0.204 0.181 0.160 0.141 0.125 0.111 0.098 0.087 0.053 0.047 0.026 0.008 0.002 0.001 0.158 0.133 0.116 0.095 40% 1.000 0.714 0.510 0.364 0.260 0.186 0.068 0.048 0.035 0.025 0.018 0.013 0.009 0.006 0.005 0.003 0.002 0.002 0.002 0.001 0.000 0.000 0.000 0.000 0.001 0.000 0.000 0.000 0.000 0.000 0.000 0.000
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Related Book For
Contemporary Financial Management
ISBN: 9780324289114
10th Edition
Authors: James R Mcguigan, R Charles Moyer, William J Kretlow
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