help in homework

New User?

Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Glaham Restaurants expects to pay a common stock dividend of $1

Glaham Restaurants expects to pay a common stock dividend of $1

Finance

Glaham Restaurants expects to pay a common stock dividend of $1.50 per share next year (d1). Dividends are expected to grow at a 4% rate for the foreseeable future. Glaham's common stock is selling for $18.50 per share and issuance costs are $3.50 per share. What is Glaham's cost of external equity? 20.59% O 12.11% 14.00% 10.00%

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

Stock Price : Price of any security is present value of future cash flows it, that are discounted at specified discount rate.

Stock Price = D1 / [  Ke - g ]

D1 = D0 ( 1 +g )

D1 - Div after 1 Year

P0 = Price Today

Ke - required Ret

g - Growth Rate.  

Cost of Equity = [ Expected Div / [ Price - Issue cost ] ] + Growth rate

= [ 1.50 / [ 18.5 - 3.5 ] ] + 0.04

= [ 1.5 / 15 ] + 0.04

= 0.10 + 0.04

= 0.14 I.e 14.00%

Option C is correct.

Sitejabber (5.0)

BBC (5.0)

Trustpilot (4.9)

Google (5.0)