The stock of Alpha Tool sells for $41.60 per share. Its current dividend rate, D0, is $2 per share. Analysts and investors expect Alpha to increase its dividends at a 15 percent rate for each of the next 2 years. This annual dividend growth rate is expected to decline to 11 percent for years 3 and 4 and then to settle down to 9 percent per year forever. Calculate the cost of internal equity for Alpha Tool. Use Table II for your calculations. Round your answer to the nearest whole number. %

The stock of Alpha Tool sells for $41.60 per share. Its current dividend rate, D0, is $2 per share. Analysts and investors expect Alpha to increase its dividends at a 15 percent rate for each of the next 2 years. This annual dividend growth rate is expected to decline to 11 percent for years 3 and 4 and then to settle down to 9 percent per year forever. Calculate the cost of internal equity for Alpha Tool. Use Table II for your calculations. Round your answer to the nearest whole number. %

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 5P

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Question

The stock of Alpha Tool sells for $41.60 per share. Its current dividend rate, D₀, is $2 per share. Analysts and investors expect Alpha to increase its dividends at a 15 percent rate for each of the next 2 years. This annual dividend growth rate is expected to decline to 11 percent for years 3 and 4 and then to settle down to 9 percent per year forever. Calculate the cost of internal equity for Alpha Tool. Use Table II for your calculations. Round your answer to the nearest whole number.

Definition Definition Amount of return a company generally pays to its equity investors. The cost of equity represents the compensation required by the market in lieu of owning the asset firm and simultaneously bearing the risk of ownership.

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