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Back to Assignment Attempts: Average: /2 5. 5The Cost of Capital Cost of New Common Stock If a firm plans to issue new stock, notation
Back to Assignment Attempts: Average: /2 5. 5The Cost of Capital Cost of New Common Stock If a firm plans to issue new stock, notation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account for fotation cours. The first soproach is to sode flotation costs for the debt, preferred, and common stock and add them to the initial Investment cost. Because the investment cost is increased the projecte expected rate of return is reduced mat meet the firm's hurdle rate for acceptance of the project. The second approach involves adjusting the cost of common equity as follows: The difference between the notation-adjusted cost of equity and the cost of equity calculated without the notation adjustment represents the rotation cox adjustment Quantitative Problemi Barton Industries expects next year's annual dividend, Di, to be $2.40 and it expects dividends to grow at a constant rote y. The firm's current common stock price, $20.00. If it needs to issue new common stock, the firm will encounter a 4 otation cost. What is the flotation cost adjustment that must be added to scout of retained earnings? Do not round Intermediate calculations. Round your answer to two decimal places What is the cost of new common equity considering the estimate made from the three estimation methodologies? Do not round intermediate calculations, Round your answer to two decimal place
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