HomeworkLib
Question

Runtan Inc. has just paid an annual dividend of $0.45 per share. Analysts expect the firm's...

Runtan Inc. has just paid an annual dividend of $0.45 per share. Analysts expect the firm's dividends to grow by 5% forever. Its stock price is $37.4 and its beta is 1.3. The risk-free rate is 2% and the expected return on the market portfolio is 8%.

Part 1

What is the best guess for the cost of equity?

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Ke = [ D1 / P0 ] + g

D1 = D0 (1+g)

= 0.45 ( 1 + 0.05 )

= 0.45 ( 1.05 )

= $ 0.4725

D1 = Expected Div after 1 Year

P0 = Current price

g = Growth Rate

Ke = [ D1 / P0 ] + g

= [ 0.4725 / 37.4 ] + 0.05

= 0.0126 + 0.05

= 0.0626 i.e 6.26%

Best guess of cost of Equity is 6.26%

0 0
Add a comment
Know the answer?
Add Answer to:
Runtan Inc. has just paid an annual dividend of $0.45 per share. Analysts expect the firm's...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Tanrun Inc. is expected to pay an annual dividend of $0.45 per share in one year....

    Tanrun Inc. is expected to pay an annual dividend of $0.45 per share in one year. Analysts expect the firm's dividends to grow by 2% forever. Its stock price is $37.6 and its beta is 0.8. The risk-free rate is 2% and the expected market risk premium is 4.5%. What is the best guess for the cost of equity? Tried with 0.0319, 0.0556 but it turns out to be wrong answers

  • Jackson Holding has just paid an annual dividend of $0.45 per share. Analysts expect the firm's...

    Jackson Holding has just paid an annual dividend of $0.45 per share. Analysts expect the firm's dividends to grow by 7% forever. Its stock price is $37.8. Question 1: What is the cost of equity from retained earnings?

  • A company has just issued a dividend of $1.64 on earnings of $2.34. The analysts expect...

    A company has just issued a dividend of $1.64 on earnings of $2.34. The analysts expect the dividends to grow at 5% forever. Investor’s observe a risk-free rate of 3%, stock’s beta is 1.5 and the market risk premium us 6%. The expected return that investors will require on this stock is: 9% 10% 12% 15% The current value of this stock is: $21.6 $24.6 $28.6 $31.6 This stock may be considered a: Value stock, since its dividend yield is...

  • The Compreses Corp has just paid a dividend of $0.5 per share. Dividends are expected to...

    The Compreses Corp has just paid a dividend of $0.5 per share. Dividends are expected to grow indefinitely at a constant rate of 6% per year. The risk-free rate is 4%, and the expected return on the market portfolio is 12%. The stock has a beta of .75. What is the intrinsic value of Compreses Corp?

  • 4. Brennan's just paid a dividend of $1.50 per share. This is expected to grow at an 8% annual rate for the next th...

    4. Brennan's just paid a dividend of $1.50 per share. This is expected to grow at an 8% annual rate for the next three years, then it will grow at 2% in perpetuity. The coefficient of correlation of Brennan's with the market portfolio is 0.3 and its standard deviation is 24%. The expected return and standard deviation for the market are 12% and 9% respectively. a. What is the beta for Brennan's? b. If the risk-free rate of return is...

  • Hope Industries just paid a dividend of $2.00 per share (i.e., D0 = $2.00). Analysts expect...

    Hope Industries just paid a dividend of $2.00 per share (i.e., D0 = $2.00). Analysts expect the company's dividend to grow 40 percent this year, and 20 percent in second year. After two years the dividend is expected to grow at a constant rate of 6 percent. The risk free rate is 4% and expected market risk premium is 6% and the firm is twice as risky as market. First calculate the current stock price using Excel. If the target...

  • The ABC Company paid a dividend of 4.25 per share. Analysts expect the dividends to grow...

    The ABC Company paid a dividend of 4.25 per share. Analysts expect the dividends to grow at the rate of 18% per year for 2 years, and then drop to 15% for 1 year, before finally converging to the industry median growth rate of 8% per year. Treasury bills are currently yielding 4%, the stock's beta is estimated to be 1.3 and the market is expected to have a rate of return of 9% over the next year. How much...

  • Question 15 2 pts Company A just paid a $1.00 dividend per share and its future...

    Question 15 2 pts Company A just paid a $1.00 dividend per share and its future dividends are expected to grow at an annual rate of 6% for the foreseeable future. The beta of company A's stock is 1.25, the risk-free rate of return is 4% and the expected return on the market portfolio is 10.4%. The value of the stock today is $. Do not put a $ sign in your answer and round to 2 decimal points. Previous...

  • 32. Spring Break, Inc. just paid an annual dividend (DC) of $2.00 per share on earnings...

    32. Spring Break, Inc. just paid an annual dividend (DC) of $2.00 per share on earnings of $3.00. You expect the firm's dividends to grow at 25% over the next two years based on its expansion plans. After that you expect dividends to grow at the industry average of 6% per year. The riskfree rate is 4%, the market risk premium is 5%, and its beta is 1.1. a) What is the discount rate? (2 pts) b) What is the...

  • Michigan Co. just paid a dividend of $2 per share. Analysts expect future dividends to grow...

    Michigan Co. just paid a dividend of $2 per share. Analysts expect future dividends to grow at 20 percent per year for the next four years and then grow at 6 percent per year thereafter. Calculate the expected dividend in year 5.

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT