ACCT 201 Lecture Notes - Lecture 18: Cost Of Capital, Dividend Discount Model, Retained Earnings
Document Summary
Cpa #20, question #1: calculating the required rate of return using the. Ross textiles wishes to measure its cost of common stock equity. The firm"s stock is currently selling for 7. (cid:887)0. The firm expects to pay a . (cid:886)0 dividend at the end of 2016. The dividends for the past 5 years are shown in the following table: After underpricing and flotation costs, the firm expects to net per share on a new issue: determine the growth rate of dividends from 2011 to 2015. Using the constant-growth valuation model, determine the cost of retained earnings, rr. Hint: use the formula: rs = (d1 / p0) + g. D1 = . 4; po = . 5 rr = rs = d1 / po + g (. 40 / . 50) + . 0997 = 15. 88: using the constant-growth valuation model, determine the cost of new common stock, rn.
