1. How much impact an estimation have in establishing the cost of capital, how much impact can earnings have on the cost of capital are there any alternatives to rely on estimation or safegaurds that can be put into place to ensure greater accuracy?
2. Why would company consider raising equity via a rights offering rather than via a general cash offer? What are the disadvantages?
3. Suppose a stock will pay $12 per share dividend in one year's time. The dividend is projected to grow at 8% the following year (2 years from today the dividend will be 12*1.08), and then 4% per year indefinitely after that. The required return is 7%. What is the stock’s price today?