Cost of common stock equity Ross Textilies wishes to measure its cost of common
ID: 2798266 • Letter: C
Question
Cost of common stock equity Ross Textilies wishes to measure its cost of common stock equity. The fiem's stock is cumently selling for $67 38 The frm expects to pay a$3.34 dividend at the end of the year 2016) The dvidends for the past 5 years are shown in the table: (Click on the loon located on the top-right comer of the data table below in order to oopy its oontents into a spreadsheet) 2013 2012 2011 3 04 $2 82 $2.62 2.12 2.08 Aher underpnong and Station cost the firm expects to net S6132 per share on a new issueExplanation / Answer
<
40.50%
Geometric Annual Growth Rate = (1.0192x1.1887x1.1190x1.078)1/4 -1 =1.0995-1 =0.0995 or 9.95%
Hence, the dividends have grown annually at the rate of 9.95% from 2011 to 2015.
Year Dividend Growth D(n) g=(D(n)-D(n-1))/D(n-1) 2011 $2.08 2012 $2.12 1.92% 2013 $2.52 18.87% 2014 $2.82 11.90% 2015 $3.04 7.80%
40.50%