# Cost of Equity with Flotation Costs

14. Weaver Chocolate Co. expects to earn $3.50 per share during the current year, its expected dividend payout ratio is 65%, its expected constant dividend growth rate is 6.0%, and its common stock currently sells for $57.50 per share. 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 equity from new common stock?

9.76%

11.08%

10.16%

9.86%

11.96%

https://brainmass.com/business/discounted-cash-flows-model/cost-of-equity-with-flotation-costs-310642

#### Solution Preview

The Gordon Dividend Growth Model states that Price of stock=Next dividend/(required rate of return-growth rate). We can restate this formula to account for flotation costs thus: Required rate of ...

#### Solution Summary

Weaver Chocolate Co. expects to earn $3.50 per share during the current year, its expected dividend payout ratio is 65%, its expected constant dividend growth rate is 6.0%, and its common stock currently sells for $57.50 per share. 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 equity from new common stock?

9.76%

11.08%

10.16%

9.86%

11.96%