Radon Homes' current EPS is $6.50. It was $3.65 5 years ago. The company pays out 60% of its earnings asdividends, and the stock sells for $34.a. Calculate the historical growth rate in earnings. (Hint: This is a 5-year growth period.) Do not round intermediatecalculations. Round your answer to two decimal places.%b. Calculate the next expected dividend per share, D1. (Hint: Do =0.60($6.50) = $3.90.) Assume that the pastgrowth rate will continue. Do not round intermediate calculations. Round your answer to the nearest cent.c. What is Radon's cost of equity, rs? Do not round intermediate calculations. Round your answer to two decimalplaces.%

The cost of equity depends on the growth rate and dividend paid by the company and it changes with…

nd the stock sells for $34. the historical growth rate in earnings. (Hint: This is a 5-year growth period.) Do not r ns. Round your answer to two decimal places. % the next expected dividend per share, D1. (Hint: Do = 0.60($6.50) = $3.90.) Assume %3D %3D te will continue. Do not round intermediate calculations. Round your answer to the ne adon's cost of equity, rs? Do not round intermediate calculations. Round your answer

nd the stock sells for $34. the historical growth rate in earnings. (Hint: This is a 5-year growth period.) Do not r ns. Round your answer to two decimal places. % the next expected dividend per share, D1. (Hint: Do = 0.60($6.50) = $3.90.) Assume %3D %3D te will continue. Do not round intermediate calculations. Round your answer to the ne adon's cost of equity, rs? Do not round intermediate calculations. Round your answer

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 2P

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Rebert Inc. showed the following balances for last year: Reberts net income for last year was 3,182,000. Refer to the information for Rebert Inc. above. Also, assume that the dividends paid to common stockholders for last year were 2,600,000 and that the market price per share of common stock is 51.50. Required: 1. Compute the dividends per share. 2. Compute the dividend yield. (Note: Round to two decimal places.) 3. Compute the dividend payout ratio. (Note: Round to two decimal places.)
Rebert Inc. showed the following balances for last year: Reberts net income for last year was 3,182,000. Refer to the information for Rebert Inc. above. Also, assume that the market price per share for Rebert is 51.50. Required: 1. Compute the dollar amount of preferred dividends. 2. Compute the number of common shares. 3. Compute earnings per share. (Note: Round to two decimals.) 4. Compute the price-earnings ratio. (Note: Round to the nearest whole number.)
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CALCULATING THE WACC Here is the condensed 2019 balance sheet for Skye Computer Company (in thousands of dollars): Skyes earnings per share last year were 3.20. The common stock sells for 55.00. last years dividend (D0) was 2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skyes preferred stock pays a dividend of 3.30 per share, and its preferred stock sells for 30.00 per share. The firms before-lax cost of debt is 10%, and its marginal tax rate is 25%. The firms currently outstanding 10% annual coupon rate, long-term debt sells at par value. The market risk premium is 5%, the risk-free rate is 6%, and Skyes beta is 1.516. The firms total debt, which is the sum of the companys short-term debt and long-term debt, equals 1.2 million. a. Calculate the cost of each capital component, that is, the after-tax cost of debt, the cost of preferred stock, the cost of equity from retained earnings, and the cost of newly issued common stock. Use the DCF method to find the cost of common equity. b. Now calculate the cost of common equity from retained earnings, using the CAPM method. c. What is the cost of new common stock based on the CAPM? (Hint: Find the difference between r1 and rs as determined by the DCF method, and add that differential to the CAPM value for rs.) d. If Skye continues to use the same market-value capital structure, what is the firms WACC assuming that (1) it uses only retained earnings for equity and (2) if it expands so rapidly that it must issue new common stock?