Ross Textiles wishes to measure its cost of common stock equity. The firms stock is currently selling

Question:

Ross Textiles wishes to measure its cost of common stock equity. The firm’s stock is currently selling for $57.50. The firm expects to pay a $3.40 dividend at the end of the year (2013). The dividends for the past 5 years are shown in the following table.

Year Dividend

2012 ...... $3.10

2011 ........ 2.92

2010 ........ 2.60

2009 ........ 2.30

2008 ........ 2.12

After under pricing and flotation costs, the firm expects to net $52 per share on a new issue.

a. Determine the growth rate of dividends from 2008 to 2012.

b. Determine the net proceeds, N_n, that the firm will actually receive.

c. Using the constant-growth valuation model, determine the cost of retained earnings, r_r.

d. Using the constant-growth valuation model, determine the cost of new common stock, r_n.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...