hocolate Comp $1.80, and company's payout ratio is 60%, and the stock is currently valued at $37.75. Flota- tion costs for new equity will be 12%. Net income in 2021 is expected to be $20 million. The company's investment banker estimates that it could sell 15-year semiannual bonds with a coupon rate of 6.5%. The face value would be $1,000 and the flota- tion costs for a bond issue would be 1%. The market-value weights of the firm's debt and equity are 30% and 70%, respectively. The firm faces a 25% tax rate. a. Based on the five-ycar track record, what is Chen's EPS growth rate? What will the dividend be in 2021? b. Calculate the firm's cost of retained earnings and the cost of new common equity. c. Calculate the break-point associated with retained earnings.

hocolate Comp $1.80, and company's payout ratio is 60%, and the stock is currently valued at $37.75. Flota- tion costs for new equity will be 12%. Net income in 2021 is expected to be $20 million. The company's investment banker estimates that it could sell 15-year semiannual bonds with a coupon rate of 6.5%. The face value would be $1,000 and the flota- tion costs for a bond issue would be 1%. The market-value weights of the firm's debt and equity are 30% and 70%, respectively. The firm faces a 25% tax rate. a. Based on the five-ycar track record, what is Chen's EPS growth rate? What will the dividend be in 2021? b. Calculate the firm's cost of retained earnings and the cost of new common equity. c. Calculate the break-point associated with retained earnings.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 15P

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