Hi :) can you please solve this. Thank you! Chapter 10 problem 5 Quantitative Pr

Question

Hi :) can you please solve this. Thank you!

Chapter 10 problem 5

Quantitative Problem:

Barton Industries expects next year's annual dividend, D1, to be $2.30 and it expects dividends to grow at a constant rate g = 4.6%. The firm's current common stock price, P0, is $20.50. If it needs to issue new common stock, the firm will encounter a 4.9% flotation cost, F. Assume that the cost of equity calculated without the flotation adjustment is 12% and the cost of old common equity is 11.5%. What is the flotation cost adjustment that must be added to its cost of retained earnings? Round your answer to 2 decimal places. Do not round intermediate calculations.
%

What is the cost of new common equity considering the estimate made from the three estimation methodologies? Round your answer to 2 decimal places. Do not round intermediate calculations.

Hi the answer is not 16.4. For both problems.

Explanation / Answer

Cost of Capital without floatation cost = 12%

then fair price of share = 2.30 / (0.12 - 0.046) = $ 31.08

Then Cost of capital with impact of floatation cost = (2.30 / (31.08)(1-0.049)) + 0.046 = 12.38%

actual price of share = $ 20.50

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