(Individual or component costs of capital) Compute the cost of the following:
b. A new common stock issue that paid a $1.05 dividend last year. The par value of the stock is $2, and the earnings per share have grown at a rate of 4 percent per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant dividend-earnings ratio of 40 percent. The price of this stock is now $30, but 9 percent flotation costs are anticipated.© BrainMass Inc. brainmass.com October 9, 2019, 9:12 pm ad1c9bdddf
The solution computes the cost of a new common stock issue (see Excel file).