Use the Following Information to Answer the Following Question(s)

question 59

Multiple Choice

Use the following information to answer the following question(s) .
Berlioz Inc.is trying to estimate its cost of ordinary equity,and it has the following information.The firm has a beta of 0.90,the before-tax cost of the firm's debt is 7.75%,and the firm estimates that the risk-free rate is 4% while the current market return is 12%.Berlioz shares currently sell for $35.00 per share.The firm pays dividends annually and expects dividends to grow at a constant rate of 5% indefinitely.The most recent dividend per share,paid yesterday,is $2.00.Finally,the firm has a marginal tax rate of 34%.
-The cost of ordinary equity using the dividend-growth model is

• A)11.00%.
• B)11.32%.
• C)11.50%.
• D)11.72%.

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Definitions:

NPV

Net Present Value (NPV) is a financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time.

Cost of Capital

The essential return rate an enterprise must attain on projects to uphold its market value and pull in investment.

Present Values

The current value of a future amount of money or stream of cash flows given a specified rate of return.

Net Present Value

A financial metric that calculates the value of projected cash flows, discounted back to the present value.