Purchase Solution

Cost of common equity with and without flotation

Not what you're looking for?

Ask Custom Question

A company's next expected dividend, D1, is $3.18; its growth rate is 6%; the stock now sells for $36. New stock (external equity) can be sold to net the firm $32.40 per share.
a. what is the company's cost of retained earnings, ks?
b. what is the company's percentage of flotation cost, F?
c. what is the company's cost of new common stock, ke?

Purchase this Solution
Solution Summary

Solutions to the cost of common equity with and without flotation is calculation.

Solution provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
Recent Feedback
  • "ty i have more need help with"
  • "ty i have jmore i need help with"
  • "great help"
  • "excellent help"
  • "Very helpful and easy to understand."
Purchase this Solution
Free BrainMass Quizzes
MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

View More Free Quizzes
Related BrainMass Solutions

  • Cost of equity and WACC

    10- 7 COST OF COMMON EQUITY WITH AND WITHOUT FLOTATION The Evanec Company's next expected dividend, D1, is $ 3.18; its growth rate is 6%; and its common stock now sells for $ 36.00.

  • Weighted avergage cost of capital for internal and external funds

    Why does only common equity change? Please see the attached file. The solution determines the weighted average cost of capital for internal and external funds.

  • Tax rate

    The flotation cost of external equity is 15% of the dollar amount issued, while the flotation cost on preferred stock is 10%. The company estimates that its WACC is 12.3%.

  • Equity cost of retained earnings

    If the company sells new common stock to finance new projects and must pay $2.00 per share in flotation cost, what is the cost of equity?

  • Cost of Equity with Flotation Costs

    310642 What would be the cost of equity from new common stock? 14.

  • Cost of equity / WACC

    Selling new common stock would incur flotation cost Cost of new equity using the constant growth model is given as Cost of new equity = D1/(P0-F) + g D1 = expected dividend = D0 X (1+g) = 2.00 X 1.05 = $2.10 P0= current price = $21.88 F = Flotation

  • LePage Co.

    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?

  • External Equity for Combs Inc

    257140 External Equity for Combs Inc Combs, Inc. is issuing new common stock at a market price of $22. Dividends last year were $1.15 per share and are expected to grow at a rate of 7%. Flotation costs will be 5% of the market price.

  • Cost of External Equity

    180211 Cost of external equity Q: Lattimore, Inc. is issuing new common stock at a market price of $22. Dividends last year were $1.15 per share and are expected to grow at a rate of 7%. Flotation costs will be 5% of the market price.

View More Related Solutions