Diana Ltd. paid a 2.50 per share dividend yesterday. The dividend ...

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Diana Ltd. paid a 2.50 per share dividend yesterday. The dividend is expected to grow at 10 percent per year
  for the foreseeable future. Diana Ltd. has a beta of 1.6, a standard deviation of returns of 30 percent, and a
  required return of 18.
 
  What is the value of a share of Diana Ltd. common stock?

Question 2

Toombes, Inc is issuing new common stock at a market price of 55. Dividends last year were 3.30 per share
  and are expected to grow at a rate of 6. Flotation costs will be 5 of the market price.
 
  What is Toombes' cost of
  retained earnings, and new equity, respectively?

[missalyssa26]

Answer to Question 1

D1 = 2.50 h (1.

Answer to Question 2

D1 = 3.30  1.06 = 3.50
Cost of retained earnings = 3.50/55 + .06 = 12.36
Cost of new equity = 3.50/(55 x .