Cost of common stock equity, p. 385

Ross Textiles wishes to measure its cost of common stock equity. The firms stock is currently selling for $57.50. The firm expects to pay a $3.40 dividend at the end of the year (2016). The dividends for the past 5 years are shown in the following table.

Year          Dividend

2015          3.10    

2014          2.92

2013          2.60

2012          2.30

2011          2.12

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

      a. Determine the growth rate of dividends from 2011 to 2015

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

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

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