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please help me with flotation cost adjustment Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and
please help me with flotation cost adjustment
Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton just paid an annual dividend, Do, of $2.30 and it expects dividends to grow at a constant rate g = 4.2%. The firm's current common stock price, Po, is $27.00. The current risk-free rate, Tre = 4%; the market risk premium, RPM, = 5.0%, and the firm's stock has a current beta, b, = 1.2. Assume that the firm's cost of debt, ra, is 8.24%. The firm uses a 3.3% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answer to 2 decimal places. Do not round intermediate calculations. 1. The CAPM approach (3 points) II. The bond-yield-plus-risk-premium approach (2 points) III. The DCF model (4 points) I IV. Barton Industries expects that if it needs to issue new common stock, the firm will encounter a 6,4% flotation cost, F. What is the flotation cost adjustment that must be added to its cost of retained earnings? (3 points) Step by Step Solution
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