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Cost of equity for Lester's Electronics

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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?

1. 9.66 percent
2. 7.77 percent
3. 8.80 percent
4. 7.22 percent
5. 9.91 percent.

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$2.19
See Also This Related BrainMass Solution

Lester Electronics Gap Analysis

Lester Electronics Gap Analysis
Using the Gap Analysis Template, prepare a 1,400-1,750-word paper in which you complete table 1, table 2, table 3, and perform a gap analysis for Lester Electronics. Be sure to incorporate appropriate citations from your readings.
NOTE: The word count does not include the tables.
Review the rubric for further assignment expectations.

Additional info from instructor:
To get you started in the right direction on this week's assignment, I wanted to post the following information for your help.

A brief outline/example of what needs to be covered follows.

Situation
The situation is that Lester has decided to pursue the merger. Do not write you paper stating that Lester is trying to decide what to do in that area. That decision has been made. You now need to decide on the financing for the merger. The choices could be any or a combination of the following:

(1) Long term debt bank financing
(2) Corporate debentures
(3) Secondary offering of common stock
(4) Offering of Preferred stock
(5) Convertible debt offering
(6) Debt offering with warrants
(7) Equity offering of convertible preferred shares
(8) Use of cash in the Retained Earnings account

An issue could be that if Lester uses all retained earnings for the merger, that would leave them with very or n excess funds in reserves. An opportunity could be that Lester could use alternative financing sources for the merger. Relating to readings: In an effort to not deplete all of capital in reserve or retained earnings, companies often use secondary offering of common stock "when no new capital is raised and all the shares on offer are being sold as a secondary offering by existing shareholders" (Brealey, p. 388.)

Stakeholder Perspectives and Ethical Dilemmas

X verses Y: Lester Electronics vs. Firms new board.
Interests, rights and values: Non-agreement on new boards direction or strategies, New board may outvote and dismiss Bernard Lester.
What is the ethical dilemma: Bernard Lester may not be in full control with a new board of directors for the new company. Bernard may inadvertently go through a hostel takeover.

A good problem statement would be: Lester can maximize shareholder wealth by selecting an appropriate finance alternative.

Example of End State Goals: Put yourself into the future and imagine what Lester Electronics will have become if the problem is solved/the opportunity is realized. Describe this end state, that is, the different things you would see happening considering the concepts and ideas from the course. Next, think about the specific metrics that will let you know that you have achieved this desired end state. These are your end-state goals. Example:
If an End State is:Provide the maximum wealth for shareholders by choosing a finance option that will yield a high return on investment.
Your End-State Goal is à Minimize your weighted average cost of capital
Your Measure is à The percentage of both debt and equity to yield a large return
Your Target is à 100% shareholder confidence in the Avral, Lester acquisition of Shangwa.
Your End-State Goal is à Appropriate debt-equity mix
Your Measure is à amount of risk and debt to yield a return on investment
Your Target is à 100% shareholder confidence in the Avral, Lester acquisition of Shangwa.
Identify several end states and then list the associated end state goals.

Additional info:
The attached zip file contains all the required info, including the books and template. Also, there are other solutions for this problem here on BrainMass.

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