Financial Management: Theory & Practice
16th Edition
ISBN: 9781337909730
Author: Brigham
Publisher: Cengage
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Chapter 9, Problem 13P
Summary Introduction
To determine: The
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Messman Manufacturing will issue common stock to the public for $30. Theexpected dividend and the growth in dividends are $3.00 per share and 5%,respectively. If the flotation cost is 10% of the issue’s gross proceeds, whatis the cost of external equity, re?
Messman Manufacturing will issue common stock to the public for $30. Theexpected dividend and growth in dividends are $3.00 per share and 5%, respectively. If the flotation cost is 10% of the issue proceeds, what is the cost of externalequity, re?
Red, Inc., Yellow Corp., and BlueCompany each will pay a dividend of $2.35 next year. The growth rate in dividendsfor all three companies is 5 percent. The required return for each company’s stockis 8 percent, 11 percent, and 14 percent, respectively. What is the stock price foreach company? What do you conclude about the relationship between the requiredreturn and the stock price?
Chapter 9 Solutions
Financial Management: Theory & Practice
Ch. 9 - Define each of the following terms: a. Weighted...Ch. 9 - Prob. 2QCh. 9 - Prob. 3QCh. 9 - Distinguish between beta (i.e., market) risk,...Ch. 9 - Suppose a firm estimates its overall cost of...Ch. 9 - Calculate the after-tax cost of debt under each of...Ch. 9 - LL Incorporateds currently outstanding 11% coupon...Ch. 9 - Duggins Veterinary Supplies can issue perpetual...Ch. 9 - Prob. 4PCh. 9 - Summerdahl Resorts common stock is currently...
Ch. 9 - Booher Book Stores has a beta of 0.8. The yield on...Ch. 9 - Prob. 7PCh. 9 - David Ortiz Motors has a target capital structure...Ch. 9 - A companys 6% coupon rate, semiannual payment,...Ch. 9 - The earnings, dividends, and stock price of Shelby...Ch. 9 - Radon Homes’ current EPS is $6.50. It was $4.42 5...Ch. 9 - Spencer Supply’s stock is currently selling for...Ch. 9 - Prob. 13PCh. 9 - Prob. 14PCh. 9 - On January 1, the total market value of the...Ch. 9 - Suppose the Schoof Company has this book value...Ch. 9 - The following table gives the current balance...Ch. 9 - Start with the partial model in the file Ch09 P18...Ch. 9 - During the last few years, Jana Industries has...Ch. 9 - b. What is the market interest rate on Jana’s...Ch. 9 - Prob. 3MCCh. 9 - d. (1) What are the two primary ways companies...Ch. 9 - What is the estimated cost of equity using the...Ch. 9 - f. What is the cost of equity based on the...Ch. 9 - g. What is your final estimate for the cost of...Ch. 9 - h. Janas target capital structure is 30% long-term...Ch. 9 - i. Use Janas target weights to calculate the...Ch. 9 - Prob. 10MCCh. 9 - k. Should the company use its overall WACC as the...Ch. 9 - l. What procedures can be used to estimate the...Ch. 9 - m. Jana is interested in establishing a new...Ch. 9 - n. What are three types of project risk? How can...Ch. 9 - o. Explain in words why new common stock that is...Ch. 9 - p. What four common mistakes in estimating the...
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- The Cost of Equity and Flotation Costs Messman Manufacturing will issue common stock to the public for $30. The expected dividend and the growth in dividends are $3.00 per share and 5%, respectively. If the flotation cost is 10% of the issue’s gross proceeds, what is the cost of external equity, re?arrow_forwardThe company is issuing additional common stock. The recently paid dividend is $1.00. Current market price of the stock is $40. Floatation cost is 10% from the market price. The dividend is expected to grow at 5%. Compute the cost of common stock.arrow_forwardRed, Inc., Yellow Corp., and Blue Company each will pay a dividend of $2.35 next year. The growth rate in dividends for all three companies is 5 percent. The required return for each company s stock is 8 percent, 11 percent, and 14 percent, respectively. What is the stock price for each company? What do you conclude about the relationship between the required return and the stock price?arrow_forward
- Red, Inc., Yellow Corp., and Blue Company each will pay a dividend of $4.15 next year. The growth rate in dividends for all three companies is 4 percent. The required return for each company’s stock is 8 percent, 11 percent, and 14 percent, respectively. What is the stock price for each company? What do you conclude about the relationship between the required return and the stock price?arrow_forwardThe Moreau Corporation is paying an annual dividend of $0.65 per share. If the price of a share of the stock is $81.25, what is the dividend yield on the stock?arrow_forwardAboudy Corporation's stock price is currently $22.00 per share. The company has just paid a dividend of $0.55 per share, and shareholders anticipate that this dividend will grow in the future at a rate of 6% per year. Use the Gordon model to calculate the company's cost of equity rE.arrow_forward
- Under peso-cost averaging, an investor will purchase P6,000 worth of stock each year for three years. The stock price is P40 in year 1, P30 in year 2 and P48 in year 3. A. What is the share purchased in every year? B. Compute the average price per share. C. Compute the average cost per share.arrow_forwardA stock sells for $30. The next dividend will be $6 per share. If the return on equity ROE is a constant 15% and the company reinvests 20% of earnings in the firm, what must be the opportunity cost of capital? (Do not round intermediate calculations.) Cost of Capitalarrow_forwardOne way to find the value of a share of a stock of a company is to assume the present value of a company is the present value of its projected income stream. The value of each share of stock is equal to the present value of the company divided by the number of shares. For example, if the present value of a company is $10,000 and there are 50 shares of stock, then each share has a present value of $10,000/50-$200. Find the value of each share of a company with 1250 shares if the company is expected to earn $400,00000 per year, I years from now, forever. Assume that the income stream is continuous, and that the continuous interest rate is 5% per year. Round your answer to three decimal places. Value of one share - $ Save for Later Attempts: 0 of 10 used. Submit Answer Q FO M Q Ma Q Ma Qu Ma Viearrow_forward
- MorningtonLtd has preferred equity with a par value of $100. It pays an annual dividend equal to 7% of par value. If therequired return for Mornington Ltd is 6%, what is the market price of the preferred equity today?arrow_forwardMartin Manufacturing stock has a market value of $45 a share. If the book value is $25 a share, the corporation's market-to-book ratio is?arrow_forwardAnle Corporation has a current stock price of $20 and is expected to pay a dividendof $1 in one year. Its expected stock price right after paying that dividend is $22.b. How much of Anle’s equity cost of capital is expected to be satisfied by dividendyield and how much by capital gain?arrow_forward
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