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If a firm plars to issue new stock, fotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account

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If a firm plars to issue new stock, fotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account for notatien costs. The first appi is to add the sum of flotation costs for the debt, preferred, and common stock and add them to the initial investment cost. Because the investment cost is increased, the project expected rato of retum is reduced so it may not meet the firm's hurdie rate for acceptance of the project. The second approsch involves adjusting the cost of common equity as follows: Cost of equity from new stock =x4=n1(1D1+g The difference between the fotation-adjusted cost of equity and the cost of equity calculated without the flotation adjustment represents the notation cost adjustment. Quantitative Problem: Barton Industries expects next year's annual dividend, O4, to be $2.40 and it expects dividends to grow at a constant rate g=4.9%. The firm's current common stock price, P0, is $25.00. If it needs to issue new common stock, the firm will encounter a 4.4% flotation cost, F. What is the fotation cost adjustment that must be ad to its cost of retained earnings? Do not round intermediate calculations. Round your answer to two decimal places. What is the cost of new common equity considecing the estimate made from the three estimation methodologies? Do not round intermediate calculations. Round your answer to decimsl places. If a firm plars to issue new stock, fotation costs (investment bankers' fees) should not be ignored. There are two approaches to use to account for notatien costs. The first appi is to add the sum of flotation costs for the debt, preferred, and common stock and add them to the initial investment cost. Because the investment cost is increased, the project expected rato of retum is reduced so it may not meet the firm's hurdie rate for acceptance of the project. The second approsch involves adjusting the cost of common equity as follows: Cost of equity from new stock =x4=n1(1D1+g The difference between the fotation-adjusted cost of equity and the cost of equity calculated without the flotation adjustment represents the notation cost adjustment. Quantitative Problem: Barton Industries expects next year's annual dividend, O4, to be $2.40 and it expects dividends to grow at a constant rate g=4.9%. The firm's current common stock price, P0, is $25.00. If it needs to issue new common stock, the firm will encounter a 4.4% flotation cost, F. What is the fotation cost adjustment that must be ad to its cost of retained earnings? Do not round intermediate calculations. Round your answer to two decimal places. What is the cost of new common equity considecing the estimate made from the three estimation methodologies? Do not round intermediate calculations. Round your answer to decimsl places

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