Question 10

Calculate the cost of new external common equity, r_e. Use the dividend growth model, assuming that the expected dividend is $5.15 per share, the stock price is $40.20 and the expected constant long-run growth rate is 5.3%. The flotation cost for this new external common equity is 16%.

20.55%

18.64%

17.55%

16.02%

Question 11

Using the information in problem 10, use the ICAPM method to calculate the cost of new external common equity, r_e. The risk-free rate of return is 4.6%, the market risk premium is 6.5%, and the firms beta is 2.40.

22.64%

20.30%

18.40%

24.69%