Delta, inc. has a stock price of $50. in the fiscal year just ended, dividends were $2.00. earnings per share and dividends are expected to increase at an annual rate of 8 percent. the risk-free rate is 4 percent, the market risk premium is 6.4 percent and the beta on delta’s stock is 1.25. delta’s target capital structure is 40% debt and 60% common equity. delta’s tax rate is 40 percent. new common stock can be sold to net $40 per share after flotation costs.delta can sell bonds that mature in 25 years with a par value of $1,000 and an 8% coupon rate paid annually for $960. Calculate the required return on the firm's stock using the discounted cash flow approach.

Answer rating: 100% (QA)

Discounted Cashfow Approach Return on stock New Stock 40 Bond 25 years Annual Pay... View the full answer