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    Cost of Equity and Dividend Determination

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    The preferred stock of Nadine Fashions pays an annual dividend of $2.3 a share and sells for $45 a share. The tax rate is 34 percent. What is the firm's cost of preferred stock?

    2.73 percent
    5.93 percent
    5.11 percent
    4.56 percent

    The common stock of Pittsburgh Steel Products has a beta of 1.52 and a standard deviation of 16.75 percent. The market rate of return is 9 percent and the risk-free rate is 3 percent. What is the cost of equity for Pittsburgh Steel Products?

    12.12 percent
    10.05 percent
    9.09 percent
    10.30 percent
    13.89 percent

    Last week, Lester's Electronics paid an annual dividend of $2.75 on its common stock. The company has a longstanding policy of increasing its dividend by 3 percent annually. This policy is expected to continue. What is the firm's cost of equity if the stock is currently selling for $42.5 a share?
    9.66 percent
    7.77 percent
    8.80 percent
    7.22 percent
    9.91 percent

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    Solution Preview

    1. Cost of Preferred = Dividend/Price = 2.3/45 = 5.11%

    2. Cost of Equity = Risk Free Rate + ...

    Solution Summary

    The solution does a great job of answering the question. The solution is brief and concise and very easy to follow along. All the steps are clearly shown. It can be easily understood by anyone with a basic understanding of the topic. Overall, an excellent solution.