RAFA Corp. is considering to issue new shares with a par value of P1,000, issue price of P1,200 and net proceeds of 1,050. Shareholders expect dividends of P80 per share for the first year and a growth rate of 4%. It may also use retained earnings as an alternative source of financing? Choosing the better alternative of the two, what would the incremental cost of capital be for RAFA? * 11.619 10.667 12.000 7.924

RAFA Corp. is considering to issue new shares with a par value of P1,000, issue price of P1,200 and net proceeds of 1,050. Shareholders expect dividends of P80 per share for the first year and a growth rate of 4%. It may also use retained earnings as an alternative source of financing? Choosing the better alternative of the two, what would the incremental cost of capital be for RAFA? * 11.619 10.667 12.000 7.924

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 11P

See similar textbooks

Related questions

Q: You are told by your investment advisor that Laduma Co. is expected to earn R5 per share next year,…

A: Formulas:

Q: ust Right Incorporated is considering the option of an extra dividend versus a share repurchase and…

A: Share repurchase is the act of buying back the shares from the shareholders in order to increase the…

Q: Bates, Inc. pays a dividend of $1 and is currently selling for $32.50. If investors require a 12…

A: We need to compute the growth rate in the given question. We can compute the growth rate using…

Q: DFB, Inc. expects earnings next year of $4.73 per share, and it plans to pay a $3.09 dividend to…

A: According to Gordon’s growth model, it is assumed that the market price of a share is calculated as…

Q: The Elkmont Corporation needs to raise $63.8 million to finance its expansion into new markets. The…

A: A company needs money to finance its operations. It can issue either debt or equity in the capital…

Q: For 2020 the free cash flow to the firm (FCFF) of ABC Co. was ₱30,000. The firm has total debt of…

A: The intrinsic value per share can be calculated from free cash flow model of equity valuation

Q: Oregano Inc. estimates that this year’s earnings will be $75 million. There are 12 million shares…

A: A dividend is a payment made to shareholders by publicly traded firms, and it is derived from the…

Q: Among the options for raising capital considered by management are (a) selling $9 million in common…

A: Share capital: Share capital can be defined as the portion of capital raised through issuing the…

Q: ensen's, an all-equity firm, has a total market value of $548,000. The firm is thinking of adding…

A: Cost of unlevered equity = 12.6% Cost of debt = 6% Post Tax cost of Debt = 6% * (1-tax)…

Q: Zoom Enterprises expects that one year from now it will pay a total dividend of $4.6 million and…

A: given, forever dividend = $9.2 million r=13.3% outstanding shares = 4.8 million

Q: Zoom Enterprises expects that one year from now it will pay a total dividend of $4.6 million and…

A: Total amount to be spent on dividends and repurchase forever (A) = $9.2 million Cost of capital (r)…

Q: The directors of Westwood Limited have appointed you as their financial consultant. They are…

A: The weighted average cost of capital refers to the sum of the proportionate cost of each source of…

Q: liff Corp. (CC) has an enterprise value (MV equity + debt – cash) of $330 million, $50 million in…

A: Repurchasing of shares means buy back of shares from public in return of cash.

Q: a) LTX's growth rate of earnings is % (Round your answer to four decimal places) (b) If LTX's…

A: Information Provided: EPS = $5.275 Expected DPS = $3.413 Retain = $1.861 Expected return = 16.516%

Q: Microsoft Inc.is currently being sold at $235.75 per share. Rose Gardens found out that last year…

A: The fair value of stock is equal to the present value of all future dividends to be earned or…

Q: Nile plc currently has 6,000,000 ordinary shares in issue, valued at $3 each, and the company has…

A: Data given:: No. of shares (current )= 6,000,000 Price per share = $3 Annual earnings @ 25 % of…

Q: Salsa Inc. estimates that this year’s earnings will be $75 million. There are 12 million shares…

A: a) Earning per share = Yearly earnings / Number of shares = 75,000,000 / 12,000,000 = $ 6.25…

Q: The Dunn Corporation is planning to pay dividends of $540000. There are 270000 shares outstanding,…

A: Given: Given:

Q: dney Ltd. was paid a dividend of $3.97 last year. If the company's growth in dividends is expected…

A: The given problem can be solved using constant growth dividend model.

Q: Just Right Incorporated is considering the option of an extra dividend versus a share repurchase and…

A: Workings: Plans to spend = $ 85000 Current earnings = $ 2.10 stock currently sells = $ 45 per share…

Q: XYZ company's common shares are selling for P30.00 per share, and the company expects to set its…

A: Price of share (P0) = P30.00 Next dividend (D1) = P1.50 Growth rate (g) = 6% Flotation cost (F) =…

Q: Jacob Limited is evaluating investment opportunities with similar expected returns, which will…

A: according to CAPM formula: cost of capital=rf+beta×rm-rfwhere,rf=risk free raterm-rf=market risk…

Q: Sidman Products's common stock currently sells for $49 a share. The firm is expected to earn $4.41…

A: Given; Current market price = $49 Expected earnings per share = $4.41 Year end dividend = $2.80

Q: Determine the amount which must be raised from the issue of new equity in order to finance the…

A: 1.

Q: Blue Co.’s has insufficient retained earnings to fund capital projects and the firm decided to issue…

A: Year end dividend (D1) = P 2.5 Growth rate (G) = 1% Cost of equity (R) = 13.5% Price of share (P0) =…

Q: Eastern Electric currently pays a dividend of about $1.96 per share and sells for $33 a share. a. If…

A: The cost that a company is willing to pay to raise the fund for the business operations of the…

Q: A company with a share price of £5.50 and 500,000 shares plans to undertake an investment project…

A: To find out the formula of new share price, we need to apply the formula of dividend valuation…

Q: Zoom Enterprises expects that one year from now it will pay a total dividend of $5.1 million and…

A: Repurchase of shares from investors and paying dividends to investors will have same effect to…

Q: Jay Limited is evaluating investment opportunities with similar expected returns, which will require…

A: Given Last year's dividend=N$6 per share Market price=N$60 per share Growth rate=9% per annum…

Q: Matilda Industries pays a dividend of $2.15 per share and is expected to pay this amount…

A: The value of the stock can be calculated by dividing cost of capital from the dividends per share if…

Q: The Sullivan Co. needs to raise $78 million to finance its expansion into new markets. The company…

A: A company can issue shares in the market in order to finance its operations. When making a primary…

Q: Costly Corporation is considering using external equity financing. Currently, the firm's stock is…

A: Current price (P0) = $60 Last dividend (D0) = $2 g = 5% Floatation cost (f) = 10% Let r = Cost of…

Q: g Nike's stock price is $68 per share, shares outstanding are $1,600 million, and the company…

A: Company need money and they can raise from the market by issue of new shares but how many shares to…

Q: Flemington Farms is evaluating an extra dividend versus a share repurchase. In either case, $15,000…

A: PE Ratio = Price / Earning per share

Q: What is CC’s current debt-to-equity ratio? What is CC’s current stock price? If CC distributes $18…

A: Debt to Equity Ratio: This ratio is applied for the evaluation of the business's financial…

Q: Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year…

A: Discounted dividend model is used to calculate the fair value of the stock. Dividend for Year 1,2…

Q: A company with a share price of £5.50 and 500,000 shares plans to undertake an investment project…

A: GIVEN, D1=25pg=7%r=11%investment share price = 5.5shares = 500,000

Q: Pimento Inc. estimates that this year’s earnings will be $75 million. There are 12 million shares…

A: Given: Earnings = $75 million Shares outstanding = 12 Million Price = $27.50

Q: Jumbuck Exploration has a current stock price of $2.10 and is expected to sell for $2.21 in one…

A: Current stock price (P0) = $2.10 Expected price after 1 year (P1) = $2.21 Dividend (D) = $0.27

Q: The Sullivan Co. needs to raise $65.8 million to finance its expansion into new markets. The company…

A: Required proceeds = 65,800,000/(1 - 0.08) = 71,521,739.1304

Q: Dreamline expects to earn $20 per share this year and intends to pay out $8 in dividends to…

A: The percentage of profits held in the company as retained earnings is known as the retention ratio.…

Q: Jay Limited is evaluating investment opportunities with similar expected returns, which will require…

A: Firm need funds for the new projects or investments for that firm has to rise capital from different…

Q: Jay Limited is evaluating investment opportunities with similar expected returns, which will require…

A: Under CAPM model, risk free rate, market rate of return and the company's beta factor will be…

Q: market and need a apital of $100,000. SGS can acquire its capital from different sources. It Forrows…

A: Weighted average cost of capital is the cost of capital using weights of different methods of…

Q: Blue Inc.’s has insufficient retained earnings to fund capital projects and must, therefore, issue…

A: Price of share (P) = P 50 Flotation cost (F) = P 5 Dividend (D1) = P 5 Growth rate (G) = 2%

Question

11.619

10.667

12.000

7.924

Definition Definition Remaining net income of the company after the required dividends are paid to shareholders. This surplus money is usually invested back into the business to expand its business operations or launch a new product.

Expert Solution