Growth? Company's current share price is $20.10 and it is expected to pay a $0.85 dividend...

80.2K

Verified Solution

Question

Finance

Growth? Company's current share price is $20.10 and it isexpected to pay a $0.85 dividend per share next year. After? that,the? firm's dividends are expected to grow at a rate of 3.5% peryear.
a. What is an estimate of Growth? Company's cost of? equity?
b. Growth Company also has preferred stock outstanding that paysa $2.10 per share fixed dividend. If this stock is currently pricedat $28.00?, what is Growth? Company's cost of preferred? stock?
c. Growth Company has existing debt issued three years ago witha coupon rate of 5.9%. The firm just issued new debt at par with acoupon rate of 6.4%. What is Growth? Company's cost of? debt?
d. Growth Company has 4.7 million common shares outstanding and1.3 million preferred shares?outstanding, and its equity has atotal book value of $50.1 million. Its liabilities have a marketvalue of $19.8 million. If Growth? Company's common and preferredshares are priced as in parts ?(a?) and ?(b?), what is the marketvalue of Growth? Company's assets?
e. Growth Company faces a 35% tax rate. Given the information inparts ?(a?) through ?(d?), and your answers to those? problems,what is Growth? Company's WACC?
?Note: Assume that the firm will always be able to utilize itsfull interest tax shield.

Answer & Explanation Solved by verified expert

3.8 Ratings (380 Votes)

a Cost of equity As per DDM Price Dividend in 1 yearcost of equity growth rate 201 085 Cost of equity 0035 Cost of equity 773 b cost of preferred equity cost of preferred equity Preferred dividendprice100 cost of See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Growth? Company's current share price is $20.10 and it isexpected to pay a $0.85 dividend per share next year. After? that,the? firm's dividends are expected to grow at a rate of 3.5% peryear.a. What is an estimate of Growth? Company's cost of? equity?b. Growth Company also has preferred stock outstanding that paysa $2.10 per share fixed dividend. If this stock is currently pricedat $28.00?, what is Growth? Company's cost of preferred? stock?c. Growth Company has existing debt issued three years ago witha coupon rate of 5.9%. The firm just issued new debt at par with acoupon rate of 6.4%. What is Growth? Company's cost of? debt?d. Growth Company has 4.7 million common shares outstanding and1.3 million preferred shares?outstanding, and its equity has atotal book value of $50.1 million. Its liabilities have a marketvalue of $19.8 million. If Growth? Company's common and preferredshares are priced as in parts ?(a?) and ?(b?), what is the marketvalue of Growth? Company's assets?e. Growth Company faces a 35% tax rate. Given the information inparts ?(a?) through ?(d?), and your answers to those? problems,what is Growth? Company's WACC??Note: Assume that the firm will always be able to utilize itsfull interest tax shield.