Question
Instructions to solve the problem: You are required to use a financial calculator or spreadsheet (Excel) to solve the problem related to the cost of
Instructions to solve the problem:
You are required to use a financial calculator or spreadsheet (Excel) to solve the problem related to the cost of capital.
You are required to show the following 3 steps for the problem.
- Describe and interpret the assumptions related to the problem.
- Apply the appropriate mathematical model to solve the problem.
- Calculate the correct solution to the problem. Submit all answers as percentages and round to two decimal places.
Problem:
Fedland Inc. will issue new common stock to finance an expansion. The existing common stock just paid a $1.75 dividend, with dividends expected to grow at a constant rate of 4% indefinitely. The stock sells for $50 and flotation expenses of 4% of the selling price will be incurred on new shares. What is the cost of new common stock?
Thank you,
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