Question 33

Mr Price is interested in measuring its overall cost of capital. Current investigation has gathered the following data. Firm is in 40% tax bracket. Common stock: The firms common stock is currently selling for R85 per share. The firm expects to pay cash dividends of R5 per share next year. The firms dividends have been growing at an annual rate of 6%, and this growth is expected to continue into the future. The stock must be underpriced by R5 per share, and flotation costs are expected to amount to R3 per share. The firm can sell an unlimited amount of new common stock under these terms Calculate the cost of common stock.

• A. 13,85%
• B. 12,85%
• C. 12,59%
• D. 13,78%