Hi :) can you please solve this thank you! Quantitative Problem: Barton Industri
ID: 2741294 • Letter: H
Question
Hi :) can you please solve this thank you!
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.
Explanation / Answer
Future Dividend
Cost of new common equity = ---------------------------------------------------- + Growth Rate
Current stock price ( 1 - Flotation cost)
=[ $ 2.30 / $20.50 (1 - 4.9%) ] + 4.6%
= $ 12.34