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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
6.12

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?
Answer
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.

\$2.19
See Also This Related BrainMass Solution

## The Determination of a Company's Stock Price

Balance sheet for Levy Corp. is below in Market Value Terms. There are 6,000 shares of stock outstanding.
Cash 19,000 Equity 182,000
Fixed Assets 163,000

Total 182,000 Total 182,000

Company has declared a dividend of \$1.20 per share. Stock goes ex-dividend tomorrow. Ignoring tax effects, what is stock selling for today? What is it selling for tomorrow? What will the balance sheet look like after dividends are paid?

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