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    Cost of Equity with Flotation Costs

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    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%

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    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%

    $2.19

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