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Use the following information for Abbot Dairies to determine the cost of common stock if selling new shares of stock.. Abbot can borrow money from
Use the following information for Abbot Dairies to determine the cost of common stock if selling new shares of stock.. Abbot can borrow money from the bank at an interest rate of 8% per year. Abbot has no preferred stock. Abbot's common stock is currently selling for $38 per share. Abbot paid a dividend yesterday (DC) of $3.636 per share, and the dividend is growing at a constant rate of 10%. Beta for Abbot's stock is 1.3, which is riskier than the average stock. Flotation costs to sell new common stock are equal to $2.00 per share. Abbot expects retained earnings next year to be sufficient to cover the equity portion of its capital budget, and the cost retained earnings is 20.53%. Abbot's tax rate is 30%. Abbot's optimal capital structure is 25% debt and 75% common equity. of O A. 17.53% OB. 21.11% O C. 20.00% D. 22.53%
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