Sears, Inc. common stock is currently trading on the NYSE at a price of $30 per share...

50.1K

Verified Solution

Question

Finance

Sears, Inc. common stock is currently trading on the NYSE ata
price of $30 per share with 24,000,000 shares outstanding.Dividend just paid is
$1.50 per share and is forecasted to grow at a constant rate of12% in the future.
U.S. 10-year Treasury Notes are currently yielding 2.5% andSear’s
outstanding 10-year debt with a face value of $50 million iscurrently trading at
96% of face value and pays annual interest of 10%. The expectedrate of return
for the S&P 500 stock index (a proxy for the market) is 12%.Sear’s
corporate tax rate is 34% and its estimated beta coefficient forrisk is 1.5.
***Please show work on EXCEL spreadsheet, please showEXCEL formulas
a) Estimate the cost of common equity capital for Searsusing the
dividend growth model
b) Estimate the cost of common equity capital for Searsusing the capital
asset pricing model (CAPM)
c) Estimate the weighted average cost of capital (WACC)for Sears
*Please show work on EXCEL spreadsheet, please showEXCEL formulas**

Answer & Explanation Solved by verified expert

4.3 Ratings (669 Votes)

aCostof Equity using DDMD1Price growth 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

Sears, Inc. common stock is currently trading on the NYSE ataprice of $30 per share with 24,000,000 shares outstanding.Dividend just paid is$1.50 per share and is forecasted to grow at a constant rate of12% in the future.U.S. 10-year Treasury Notes are currently yielding 2.5% andSear’soutstanding 10-year debt with a face value of $50 million iscurrently trading at96% of face value and pays annual interest of 10%. The expectedrate of returnfor the S&P 500 stock index (a proxy for the market) is 12%.Sear’scorporate tax rate is 34% and its estimated beta coefficient forrisk is 1.5.*****Please show work on EXCEL spreadsheet, please showEXCEL formulas****a) Estimate the cost of common equity capital for Searsusing thedividend growth modelb) Estimate the cost of common equity capital for Searsusing the capitalasset pricing model (CAPM)c) Estimate the weighted average cost of capital (WACC)for Sears*****Please show work on EXCEL spreadsheet, please showEXCEL formulas****