A company’s common stock currently sells for $56.00 per share. The growth rate is a constant 6%, and the company has an expected dividend yield of 7%. The expected long run dividend payout ratio is 20%, and the expected return on equity (ROE) is 7.5%. New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of new equity?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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A company’s common stock currently sells for $56.00 per share.  The growth rate is a constant 6%, and the company has an expected dividend yield of 7%.  The expected long run dividend payout ratio is 20%, and the expected return on equity (ROE) is 7.5%.  New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred.  What would be the cost of new equity?

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