Cost of Equity from a New Common Stock
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Question: 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 $32.50 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?
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Solution Summary
This solution is comprised of a step by step response which illustrates how to calculate the cost of equity when using a growth rate of 6% and shares which are $3.50. The required formula and associated variables are described.
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