Question
Cost of equity) The common stock for the Bestsold Corporation sells for $65. If a new issue is sold, the flotation costs are estimated to
Cost of equity) The common stock for the Bestsold Corporation sells for $65. If a new issue is sold, the flotation costs are estimated to be 9 percent. The company pays 80 percent of its earnings in dividends, and a $4.00 dividend was recently paid. Earnings per share 3 years ago were $3.00. Earnings are expected to continue to grow at the same annual rate in the future as during the past 3 years. The firm's marginal tax rate is 36 percent. Calculate the cost of (a) internal common equity and (b) external common equity. What is the firms cost of internal common equity and external common equity?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started