The common stock for Hightower Corporation currently sells for $62. If a new issue is sold, the flotation costs will be 6 percent. The company pays 50 percent of its earnings in dividends (and expects to continue to do so), and a $4 dividend was recently paid. Earnings per share 5 years ago were $5. Earnings are expected to continue to grow at the same rate as during the past 5 years. The firm's marginal tax rate is 30 percent. Calculate the cost of (a) internal equity and (b) external equity.
The common stock for Hightower Corporation currently sells for $62. If a new issue is sold, the flotation costs will be 6 percent. The company pays 50 percent of its earnings in dividends (and expects to continue to do so), and a $4 dividend was recently paid. Earnings per share 5 years ago were $5. Earnings are expected to continue to grow at the same rate as during the past 5 years. The firm's marginal tax rate is 30 percent. Calculate the cost of (a) internal equity and (b) external equity.
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 8P
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The common stock for Hightower Corporation currently sells for $62. If a new issue is sold, the flotation costs will be 6 percent. The company pays 50
percent of its earnings in dividends (and expects to continue to do so), and a $4 dividend was recently paid. Earnings per share 5 years ago were $5.
Earnings are expected to continue to grow at the same rate as during the past 5 years. The firm's marginal tax rate is 30 percent. Calculate the cost of (a)
internal equity and (b) external equity.
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