CFIN
5th Edition
ISBN: 9781305661639
Author: Scott Besley, Eugene Brigham
Publisher: Cengage Learning
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Chapter 11, Problem 10PROB
Summary Introduction
Cost of new common stock is the cost incurred by the company for issue new common stock.
Calculate the cost new common stock as follows:
Flotation cost is cost incurred for issuing the common stock. Examples are underwriting fee, legal fee and registration fee.
HHA has growth rate of 5% and current price is $28 and paid a recent dividend of $2.40. Cost of the new common stock is 15%.
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Topstone Industries is expected to pay a dividend of $2.10 per share in one year. This dividend, along with the firm’s earnings, is expected to grow at a rate of 5% forever. If the current market price for a share of Topstone is $38.62, what is the cost of equity?
A company’s common stock is currently selling at $40 per share. Its most recent dividend was $1.60, and the financial community expects that its dividend will grow at 10% per year in the foreseeable future. What is the company’s equity cost of retained earnings? If the company sells new common stock to finance new projects and most pay $2 per share in flotation costs, what is the cost of equity?
Be sure to include your work for all calculations.
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