COST OF COMMON EQUITY WITH AND WITHOUT FLOTATION The Evanec Company\'s next expe
ID: 2791443 • Letter: C
Question
COST OF COMMON EQUITY WITH AND WITHOUT FLOTATION
The Evanec Company's next expected dividend, D1, is $2.93; its growth rate is 5%; and its common stock now sells for $37. New stock (external equity) can be sold to net $35.15 per share.
What is Evanec's cost of retained earnings, rs? Round your answer to two decimal places. Do not round your intermediate calculations.
rs = %
What is Evanec's percentage flotation cost, F? Round your answer to two decimal places.
F = %
What is Evanec's cost of new common stock, re? Round your answer to two decimal places. Do not round your intermediate calculations.
re = %
Explanation / Answer
Answer 1 cost of retained earning= (Expected dividend/old stock price)+Growth cost of retained earning= 2.93/37+.05 cost of retained earning= 12.92% Answer 2 Old stock price*(1-percentage of flotation cost)=New stock price 37*(1-percentage) 35.15 37-37percent flotation cost= 35.15 37 percentage of flotation cost= 1.85 percentage of flotation cost 1.85/37 percentage of flotation cost 5.00% Answer 3 Cost of new retained earning= (Expected dividend/New stock price)+Growth Cost of new retained earning= 2.93/35.15+.05 Cost of new retained earning= 13.34%