Cost of Capital
A firm’s common stock currently trades at P30 per share. It is expected to pay an annual dividend
of P3 per share at the end of the year. The constant growth rate is 5% per year.
What is the company’s cost of common equity if all of its equity comes from retained
If the company issues new stocks, it will incur a 10% flotation cost. What is the cost of equity
from the new stocks? __________________________
Alaska’s future earnings, dividends and common stock price are expected to grow at 5% per year.
Alaska’s common stock currently sells for P23 per share, its last
dividend was P2 and it will pay
P2.10 dividend at the end of the current year.
What is its cost of common equity using the Gordon’s growth model? __________________
If the firm’s beta is 1.5, the risk free rate is 7%, and the average return on the marke
t is 12%,
what is the firm’s cost of common equity using the CAPM? _______________________
If the firm’s bonds earn a return of 10% based on the bond
approach, what will be the cost of common equity? ______________________