Chapter 3: Weighted Average Cost of Capital Flashcards
(35 cards)
Cost of Common Equity 2 approaches
- Dividend Growth Model
- Security Market Line (SML) / Capital Asset Pricing Model (CAPM)
Rate of return that investors holding shares in a firm required.
Cost of equity
The 3 cost of equity
- Cost of Common Equity (Re)
- Cost of Debt (Kd)
- Cost of Preffered Stock (Kp)
The formula of getting Common stock (Re) using discounted growth model
Re = (D1 / Po) + g
This rate of dividend we promised to the preferred stockholders.
Cost of Preferred Stock
The current price of Preffered stock is
Po = d/Kp
Formula of getting Kp
Kp = d/Po
Is the interest rate collected by the creditors of the fund. It must be cost of debt after tax.
Kd after tax = Kd (1 - t)
The formula for the Capital Asset Pricing Model
Re = Rf + B (Rm-Rf)
Formula of getting of Risk Premiumq
Rp = Rm - Rf
Suppose that Jollibee Foods Corp. is expected to pay a dividend of P0.70 per share next year and average dividend growth is found at 11.06% and current stock price (Po) is P136/share.
What is the Re?
found in Notebook
ABC price shares is at P40/share and expects dividend to grow at 5% each year. It paid dividend last year at P4/shares. Determine Re.
Found in notebook
The current price of XYZ Company is P300 per share. It will declare and pay dividend at P30 share next year. Average dividend growth is at 5%.
What is the cost of common of equity (Re)?
Found in notebook
ABC Company’s historical data on dividends:
2018= P32/share
2019 = P33
2020 = P33.50
2021 = P34.50
2022 = P35
a.) What is dividend growth rate (g)?
Found in notebook
ABC Company’s historical data on dividends:
2018= P32/share
2019 = P33
2020 = P33.50
2021 = P34.50
2022 = P35
b.) Assume Po = P400 per share and approved dividends is P35.20 to be distributed the ff. quarter. Find Re on Common Equity.
Found in Notebook
Suppose jollibee Foods Corp. is expected to pay dividend of P0.70/share next year and the current price is P136.00/share.
Find Re.
2019= 0.62
2018 = 0.60
2017 = 0.56
2016 = 0.45
2015 = 0.41
Found in Notebook
ABC Limited borrowed 200M from Bank D. The interest charged is 8% per year. Find Kd after tax. Tax is 30%.
Found in Notebook
In Beta, beyond 1.00 is ______
Risk
In Beta, below 1.00 is ________
not risk
The current price of the stock is P120 per share. The expected return market is 12%. This portfolio shows a beta of 0.90. The Philippine T-bills is at 4.5%.
Found in notebook
The current price of the stock is P120 per share. The expected return market is 12.5%. This portfolio shows a beta of 0.75. The Philippine T-bills is at 3.5%.
found in notebook
ABC Limited borrowed 200M from Bank D. The interest charged is 12% per year. Find Kd after tax. Tax is 30%.
Foun in Notebook
A 8.5% preferred stock is selling at P155/share. Find the cost of preferred equity. (Assume Par Values is P100).
Found in Notebook
The current price of the stock is P380 per share. The expected return on the market is 11.5%. This portfolio shows a beta of 1.22. The Philippine T-bills is at 3.5%.
Compute Re.
Found in Paper