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Q4 Cost of common shares A firm is considering an expenditure of $7,500,000 for expanding its operations. The relevant information is as follows: Number of

Q4 Cost of common shares

A firm is considering an expenditure of $7,500,000 for expanding its operations. The relevant information is as follows:

Number of existing (outstanding) equity shares = $1,000,000

Market value per existing share = $100

Net earnings = $10,000,000

Calculate the cost of existing equity shares and of new equity shares assuming that the new shares will be issued at a price of $92 per share and the cost of new issue will be Rs.2 per share.

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