Home / Questions / Calculate a firm required rates of return for both of its equity components
Calculate a firm's required rates of return for both of its equity components: Its common stock sells for $50.00 per share and will pay a $6.00 dividend which is expected to grow at a constant 5% rate. Its preferred stock sells for $22.50 per share and pays $1.80 in dividends. What accounts for the difference in returns, given that these are both forms of equity?
107. Why can it be incorrect to evaluate all capital budgeting proposals at the firm's current weighted-average cost of capital?
108. In addition to the tax shield offered by the federal government, debt has a lower required rate of return than equity. Why is it not common to see firms that have much larger debt components in their capital structure?
109. What happens when capital structure changes?
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