The Ethereum Imports Company’s EPS in 2011 was $3.00, and in 2006 it was $1.90. The company’s payout ratio is 30%, and the stock is currently valued at $42. Flotation costs for new equity will be 7%. Net income in 2012 is expected to be $15 million. The market-value weights of the firm’s debt and equity are 40% and 60%, respectively. a. Based on the five-year track record, what is Dempere’s EPS growth rate? What will the dividend be in 2012? b. Calculate the firm’s cost of retained earnings and the cost of new common equity. c. Calculate the breakpoint associated with retained earnings

The Ethereum Imports Company’s EPS in 2011 was $3.00, and in 2006 it was $1.90. The company’s payout ratio is 30%, and the stock is currently valued at $42. Flotation costs for new equity will be 7%. Net income in 2012 is expected to be $15 million. The market-value weights of the firm’s debt and equity are 40% and 60%, respectively. a. Based on the five-year track record, what is Dempere’s EPS growth rate? What will the dividend be in 2012? b. Calculate the firm’s cost of retained earnings and the cost of new common equity. c. Calculate the breakpoint associated with retained earnings

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 13P

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