The firm's marginal tax rate is 35%. The firm's currently outstanding 10% annual coupon rate long-term debt sells at $1,051.11. The debt matures in 7 years. Coupon interest is paid semiannually. Skye's preferred stock pays a dividend of $3.30 per share, and its preferred stock sells for $30 per share. Skye's earnings per share last year were $3.20. The common stock sells for $55.00, last year’s dividend (D0) was $2.10, and a flotation cost (i.e, f ) of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. The market risk premium is 5%, the risk-free rate is 6%, and Skye's beta is 1.516. Question: Calculate the cost of equity from retained earnings (rs )AND the cost of newly issued common stock (re ). Use the Dividend Discount Model(DDM) method to find the cost of common equity. (show in excel format with spreadsheet inputs)

The firm's marginal tax rate is 35%. The firm's currently outstanding 10% annual coupon rate long-term debt sells at $1,051.11. The debt matures in 7 years. Coupon interest is paid semiannually. Skye's preferred stock pays a dividend of $3.30 per share, and its preferred stock sells for $30 per share. Skye's earnings per share last year were $3.20. The common stock sells for $55.00, last year’s dividend (D0) was $2.10, and a flotation cost (i.e, f ) of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. The market risk premium is 5%, the risk-free rate is 6%, and Skye's beta is 1.516. Question: Calculate the cost of equity from retained earnings (rs )AND the cost of newly issued common stock (re ). Use the Dividend Discount Model(DDM) method to find the cost of common equity. (show in excel format with spreadsheet inputs)

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter24: Analysis Of Financial Statements

Section: Chapter Questions

Problem 5CE

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