Cost of Equity with and without Flotation Javits & Sons\' common stock currently
ID: 2765731 • Letter: C
Question
Cost of Equity with and without Flotation Javits & Sons' common stock currently trades at $37.00 a share. It is expected to pay an annual dividend of $2.75 a share at the end of the year (D1 = $2.75), and the constant growth rate is 8% a year. What is the company's cost of common equity if all of its equity comes from retained earnings? Round your answer to two decimal places. % If the company were to issue new stock, it would incur a 10% flotation cost. What would the cost of equity from new stock be? Round your answer to two decimal places. %
Explanation / Answer
solution :
cost of equity = (D1/Price) + Growth 15.43% (2.75/37)+0.08 cost of new equity = (D1/(Price*(1-floatation cost))) + Growth 16.26% (2.75/(37*(1-.10)))+0.08