1. Use the dividend growth model to determine the required rate of return for equity. Your firm intends to issue new common stock. Your investment bankers have determined that the stock should be offered at a price of $20.00 per share and that you should anticipate paying a dividend of $0.50 in one year. If you anticipate a constant growth in dividends of 4.00% per year and the investment banking firm will take 10.00% per share as flotation costs, what is the required rate of return for this issue of new common stock?

1. Your firm has an average-risk project under consideration. You choose to fund the project in the same manner as the firm's existing capital structure. If the cost of debt is 8.50%, the cost of preferred stock is 9.00%, the cost of common stock is 11.50%, and the WACC adjusted for taxes is 10.50%, what is the NPV of the project, given the expected cash flows listed here?

Answer rating: 100% (QA)

Part 1 Determining the Required Rate of Return for Equity Using the Dividend Growth Model Given info... View the full answer