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Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $50.00 per share. The firm's dividend for next year is expected
Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $50.00 per share. The firm's dividend for next year is expected to be $4.70 with an annual growth rate of 7.0% thereafter indefinitely. If the firm issues new stock, the flotation costs would equal 12.0% of the stock's market value. The firm's marginal tax rate is 40%. What is the firm's cost of internal equity?
a. 18.43%
b. 17.68%
c. 17.06%
d. 16.40%
e. 15.46%
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