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Cost of newly issued stock

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Roto Roofing Corp. just paid a dividend of $1.85. This dividend is expected to grow at a constant annual ratae of 3% per year. Roto Roofing's common stock is currently selling for $12.50. The firm can sell new stock at this price subject to floatation costs of 15%. What will the cost of the newly issued stock be?

a. 17.8%
b. 16.2%
c. 18.5%
d. 19.7%
e. 20.9%

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Solution Summary

This post explains how to calculate the cost of newly issued stock if current price f the common stock; floatation cost, dividend and dividend growth rate is given.

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