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Click here to read the eBook: The Cost of Retained Earnings, Click here to read the eBook: Cost of New Common Stock, r. Problem Walk-Through
Click here to read the eBook: The Cost of Retained Earnings, Click here to read the eBook: Cost of New Common Stock, r. Problem Walk-Through COST OF EQUITY WITH AND WITHOUT FLOTATION Jarett & Sons's common stock currently trades at $22.00 a share. It is expected to pay an annual dividend of $1.25 a share at the end of the year (D; - $1.25), and the constant growth rate is 3% a year. a. What is the company's cost of common equity if all of its equity comes from retained earings? Round your answer to two decimal places. Do not round your intermediate b. If the company issued new stock, it would incur a 18% flotation cost. What would be the cost of equity from new stock? Round your answer to two decimal places. Do not round your intermediate calculations Click here to read the eBook: Basic Definitions WACC Olsen Outfitters Inc. believes that its optimal capital structure consists of 70% common equity and 30% debt, and its tax rate is 40%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $2 milion of retained earnings with a cost of -15%. New common stock in an amount up to $6 millon would have a cost of r. - 19%. Furthermore, Olsen can raise up to $4 million of debt at an interest rate of -11% and an additional $3 million of debt at -12%. The CFO estimates that a proposed expansion would require an investment of $3.6 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places. %
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