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Builtrites common stock is currently selling for $68 a share and the firm expects to pay the next annual dividend of $2.80 per share. Management
Builtrites common stock is currently selling for $68 a share and the firm expects to pay the next annual dividend of $2.80 per share. Management believes that dividends and earnings should grow at 8% annually. Since new stock would need to be sold to finance an expansion, Builtrite expects flotation costs to be 5% of the expected selling price of $68 a share. Based on this, and a marginal tax rate of 34%, what is the cost of new common stock?
10.6% | ||
6.7% | ||
12.3% | ||
12.7% |
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