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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 2.6

2009 2.3

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, that the firm will actually receive.

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

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

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M943928

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