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Cost of Capital with Flotation Costs

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Question: You were recently hired by Scheuer Media Inc. to estimate its cost of capital. You obtained the following data: D1 = $1.75; P0 = $35.00; g = 7.00% (constant); and F = 5.00%. What is the cost of equity raised by selling new common stock?
15.33%
15.08%
9.32%
10.06%
12.26%

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Solution Summary

This solution uses the Gordon Dividend Growth Model to determine required rate of return. All calculations are shown.

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The Gordon Dividend Growth Model states that the price of stock = next dividend/(required rate of return-growth rate). We can restate this formula to account ...

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