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2. The earnings, dividends, and stock price of BB Company are expected to grow at 7% per year after this year. BB Company's common stock sells for P23 per share, its last dividend was P2.00 and the company pay P2.14 at the end of the current year. BB Company should pay P2.50 flotation cost. Using the dividend growth model, what is the expected cost of retained earnings for BB Company?

2. The earnings, dividends, and stock price of BB Company are expected to grow at 7% per year after this year. BB Company's common stock sells for P23 per share, its last dividend was P2.00 and the company pay P2.14 at the end of the current year. BB Company should pay P2.50 flotation cost. Using the dividend growth model, what is the expected cost of retained earnings for BB Company?

EBK CFIN
EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter3: The Financial Environment: Markets, Institutions And Investment Banking
Section: Chapter Questions
Problem 16PROB
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Cost of Capital - Activity 1. AA Company issued 50 preferred stock wi and sel Pred stock was Ficcuing the 2. The earnings, dividends, and stock price of BB Company are expected to grow at 7% per year after this year. BB Company's common stock sells for P23 per share, its last dividend was P2.00 and the company pay P2.14 at the end of the current year. BB Company should pay P2.50 flotation cost. Using the dividend growth model, what is the expected cost of retained earnings for BB Company? 3. Same information with no. 2, what is the expected cost of new common stock for BB Company using the dividend growth model? 4. According to CAPM estimates, what is the cost of equity for a firm with beta of 1.5 when the risk- free interest is 6% and the expected return on the market portfolio is 15%? 5. CC Company's 5-year bonds are selling at P820. The bonds face amount is P1,000 and pays an annual interest rate of 6%. CC's tax rate is at 30%. What is CC's cost of debt?
Transcribed Image Text:Cost of Capital - Activity 1. AA Company issued 50 preferred stock wi and sel Pred stock was Ficcuing the 2. The earnings, dividends, and stock price of BB Company are expected to grow at 7% per year after this year. BB Company's common stock sells for P23 per share, its last dividend was P2.00 and the company pay P2.14 at the end of the current year. BB Company should pay P2.50 flotation cost. Using the dividend growth model, what is the expected cost of retained earnings for BB Company? 3. Same information with no. 2, what is the expected cost of new common stock for BB Company using the dividend growth model? 4. According to CAPM estimates, what is the cost of equity for a firm with beta of 1.5 when the risk- free interest is 6% and the expected return on the market portfolio is 15%? 5. CC Company's 5-year bonds are selling at P820. The bonds face amount is P1,000 and pays an annual interest rate of 6%. CC's tax rate is at 30%. What is CC's cost of debt?
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