Question
The common stock for the Bestsold corporation sells for $56. if a new issue is sold, the flotation costs are estimated to be 12 percent.
The common stock for the Bestsold corporation sells for $56. if a new issue is sold, the flotation costs are estimated to be 12 percent. The company pays 70 percent of its earnings in dividends, and a $4.90 dividend was recently paid. Earnings per share 6 years ago were $5.00. Earnings are expected to grow at the same annual rate in the future as during the past 6 years. The firm's marginal tax rate is 36 percent. calculate the cost of (a) internal common equity and (b) external common equity.
I really need help understanding the equation and how it is developed.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started