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Suppose you want to start a business (a corporation) by raising capital through selling stocks to prospective investors. Assume that you can sell common stock
Suppose you want to start a business (a corporation) by raising capital through selling stocks to
prospective investors. Assume that you can sell common stock for $16 per share and investors
require a 10% return. However, the administrative or flotation costs associated with selling the stock
amount to $2.50 per share. What is the cost of capital for your business, if the corporation raises
money by selling common stock only?
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