The Evanec Company's next expected dividend, $D_1$, is $\$ 3.18$; its growth rate is $6 \%$; and its common stock now sells for $\$ 36.00$. New stock (external equity) can be sold to net $\$ 32.40$ per share.

What is Evanec's percentage flotation cost, F?

Palencia Paints Corporation has a target capital structure of 35% debt and 65% common equity, with no preferred stock. Its before-tax cost of debt is 8%, and its marginal tax rate is 40%. The current stock price is $\mathrm{P}_{0}=\$ 22.00$. The last dividend was $\mathrm{D}_{0}=\$ 2.25$, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC?

The future earnings, dividends, and common stock price of Carpetto Technologies Inc. are expected to grow $7 \%$ per year. Carpetto's common stock currently sells for $\$ 23.00$ per share; its last dividend was $\$ 2.00$; and it will pay a $\$ 2.14$ dividend at the end of the current year.

a. Using the DCF approach, what is its cost of common equity?

b. If the firm's beta is $1.6$, the risk-free rate is $9 \%$, and the average return on the market is $13 \%$, what will be the firm's cost of common equity using the CAPM approach?

c. If the firm's bonds earn a return of $12 \%$, based on the bond-yield-plus-risk-premium approach, what will be $r_s$ ? Use the midpoint of the risk premium range.

d. If you have equal confidence in the inputs used for the three approaches, what is your estimate of Carpetto's cost of common equity?

Answer the following.

The Evanec Company's next expected dividend, $\mathrm{D}_1$, is 3.18 dollars; its growth rate is 6 percent; and its common stock now sells for 36.00 dollars. New stock (external equity) can be sold to net 32.40 dollars per share.

a. What is Evanec's cost of retained earnings, $r$ s?

b. What is Evanec's percentage flotation cost, F?

c. What is Evanec's cost of new common stock, $\mathrm{r}_{\mathrm{e}}$ ?

Hook Industries’s capital structure consists solely of debt and common equity. It can issue debt at $r_{d}=11 \%$, and its common stock currently pays a $2.00 dividend per share$\left($\mathrm{D}$_{0}=$2.00\right)$. The stock's price is currently $24.75, its dividend is expected to grow at a constant rate of 7% per year, its tax rate is 35%, and its WACC is 13.95%. What percentage of the company’s capital structure consists of debt?

Constant-Growth Model. Waterworks has a dividend yield of 8%. If its dividend is expected to grow at a constant rate of 5%, what must be expected rate of return on the company's stock?

Jarett & Sons’s common stock currently trades at $30.00 a share. It is expected to pay an annual dividend of$1.00 a share at the end of the year $\left(\mathrm{D}_{1}=\$ 1.00\right)$, and the constant growth rate is 4% a year. a. What is the company’s cost of common equity if all of its equity comes from retained earnings? b. If the company issued new stock, it would incur a 10% flotation cost. What would be the cost of equity from new stock?

Javits & Sons's common stock currently trades at $\$ 30.00$ a share. It is expected to pay an annual dividend of $\$ 3.00$ a share at the end of the year $\left(D_1=\$ 3.00\right)$, and the constant growth rate is $5 \%$ a year.

a. What is the company's cost of common equity if all of its equity comes from retained earnings?

b. If the company issued new stock, it would incur a $10 \%$ flotation cost. What would be the cost of equity from new stock?

The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 6 percent per year. Callahan's common stock currently sells for 22.00 dollars per share, its last dividend was 2.00 dollars, and it will pay a 2.12 dollars dividend at the end of the current year.

a. Using the DCF approach, what is its cost of common equity?

b. If the firm's beta is 1.2, the risk-free rate is 6 percent, and the average return on the market is 13 percent, what will be the firm's cost of common equity using the CAPM approach?

c. If the firm's bonds earn a return of 11 percent, based on the bond-yield-plus-risk-premium approach, what will be $r_s$ ? Use the midpoint of the risk premium range discussed in the lessons before in your calculations.

d. If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity?

Torch Industries can issue perpetual preferred stock at a price of $57.00 a share. The stock would pay a constant annual dividend of$6.00 a share. What is the company’s cost of preferred stock, $\mathrm{T}_{\mathrm{P}} ?$

The Holmes Company’s currently outstanding bonds have an 8% coupon and a 10% yield to maturity. Holmes believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 40%, what is Holmes’ after-tax cost of debt?

Banyan Co.’s common stock currently sells for $46.75 per share. The growth rate is a constant 6%, and the company has an expected dividend yield of 5%. The expected long-run dividend payout ratio is 20%, and the expected return on equity (ROE) is 7.5%. New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of new equity?

The Choi Company's next expected dividend, $\widehat{D}_1$, is $3.18; its growth rate is 6 percent; and its stock currently sells for $36. New stock can be sold to net the firm $32.40 per share.

What is Choi's cost of new common stock,$r_e$?

The Choi Company's next expected dividend, $\widehat{D}_1$, is $3.18; its growth rate is 6 percent; and its stock currently sells for $36. New stock can be sold to net the firm $32.40 per share.

What is Choi's percentage flotation cost, F?