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Concept explainers
Cost of new common equity also known as external capital equity is similar to the cost of
Here,
Dividend expected to be paid next year is “
Price of the stock today is “
Flotation cost expressed in percentage is “F”
The company’s cost of retained earnings is 15.5 percent and currently sells its stock for $32. Its expected next dividend is $3.36 and flotation cost of new common equity is 6.5 percent.
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- Eakins Inc.'s common stock currently sells for $15.00 per share, the company expects to earn $2.75 per share during the current year, its expected payout ratio is 70%, and its expected constant growth rate is 6.00%. New stock can be sold to the public at the current price, but a flotation cost of 8% would be incurred. By how much would the cost of new stock exceed the cost of retained earnings? Do not round your intermediate calculations. a. 0.67% О b. 1.12% O c. 0.78% O d. 1.45% O e. 0.89%arrow_forwardEakins Inc.'s common stock currently sells for $55.00 per share, the company expects to earn $2.75 per share during the current year, its expected payout ratio is 70%, and its expected constant growth rate is 6.00%. New stock can be sold to the public at the current price, but a flotation cost of 8% would be incurred. By how much would the cost of new stock exceed the cost of retained earnings? A. 0.21% B. 0.30% C. 0.37% D. 0.24% E. 0.27%arrow_forwardCountess Corp. is expected to pay an annual dividend of $3.97 on its common stock in one year. The current stock price is $68.04 per share. The company announced that it will increase its dividend by 3.20 percent annually. What is the company's cost of equity?arrow_forward
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- Jarett & Sons’s common stock currentlytrades at $30.00 a share. It is expected to pay an annual dividend of $1.00 a share at the endof the year (D1 = $1.00), and the constant growth rate is 4% a year.a. What is the company’s cost of common equity if all of its equity comes from retainedearnings?b. If the company issued new stock, it would incur a 10% flotation cost. What would bethe cost of equity from new stock?arrow_forwardSun Instruments expects to issue new stock at $38 a share with estimated flotation costs of 7 percent of the market price. The company currently pays a $2.50 cash dividend and has a 4 percent growth rate. What are the costs of retained earnings and new common stock? Round your answers to two decimal places. Costs of retained earnings: % Cost of new common stock: %arrow_forwardBlackrock is an asset management company whose share price is currently $749.1 per share. The company currently pays a dividend of $5.8 per share every quarter. Investors in BLK shares are currently demanding a required rate of return of 6%. What is Blackrock's dividend yield? Enter your answer in decimal form rounded to four decimal places.arrow_forward
- Tokyo Steel's common stock currently is seeling for $56 per share. The most recent dividend paid to common stockholders was $2.40, and this dividend is expected to grow at a rate of 5 percent for as long as Tokyo is in business. If it issues new common stock, Tokyo will incur flotation costs equal to 10.0 percent. (a) What is the company's cost of retained earnings? (b) What is its cost of new common equity?arrow_forwardGrowth Company's current share price is $19.95 and it is expected to pay a $1.00 dividend per share next year. After that, the firm's dividends are expected to grow at a rate of 3.8% per year. a. What is an estimate of Growth Company's cost of equity? b. Growth Company also has preferred stock outstanding that pays a $2.30 per share fixed dividend. If this stock is currently priced at $28.15, what is Growth Company's cost of preferred stock? C. Growth Company has existing debt issued three years ago with a coupon rate of 5.8%. The firm just issued new debt at par with a coupon rate of 6.6%, what is Growth Company's cost of det? d. Growth Company has 5.4 million common shares outstanding and 1.2 million preferred shares outstanding, and its equity has a total book value of $50.1 million. Its liabilities have a market value of $20.3 million. If Growth Company's common and preferred shares are priced as in parts (a) and (b), what is the market value of Growth Company's assets? e, Growth…arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
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