Using the constant-growth valuation model determine the

Question

Cost of common stock equity Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for $56.69. The firm expects to pay a $3.21 dividend at the end of the year (2016). The dividends for the past 5 years are shown in the following table:

Year Dividend per Share

2015 $2.94

2014 $2.61

2013 $2.31

2012 $2.26

2011 $2.07

After underpricing and flotation costs, the firm expects to net $53.29 per share on a new issue.

a. Determine the growth rate of dividends from 2011 to 2015.

b. Determine the net proceeds, N_n, that the firm will actually receive.

c. Using the constant-growth valuation model, determine the cost of retained earnings, r_s.

d. Using the constant-growth valuation model, determine the cost of new common stock, r_n.