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Marginal cost of equity

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Vertrice Industries expects to earn $400 million in after-tax income this year. Currently, Vertrice Industry stock is selling for $25 per share and the current annual dividend of $2 is expected to increase by 6% per year. Flotation costs are estimated at 10%. If it has a dividend payout ratio of 75% and a capital structure of 50% debt and 50% common equity, calculate what its marginal cost of equity capital will be if it must fund a capital budget of $800 million with equity capital.

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The solution discusses marginal cost of equity.

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