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The current market price of ABC's common stock is $64. The flotation costs are estimated to be 9 percent for a new issue. The company's
The current market price of ABC's common stock is $64. The flotation costs are estimated to be 9 percent for a new issue. The company's dividend payout ratio is 60%, and it just paid a $5.40 dividend. Earnings per share 3 years ago were $7.00. And the growth rate of earnings is expected to the same as that in the past 3 years. The marginal tax rate of the company is 36%. Calculate the following costs of capital for the company.
a. What is the firm's cost of internal common equity?
b. What is the firm's cost of external common equity?
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