Cost of Capital with Flotation Costs
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Question: You were recently hired by Scheuer Media Inc. to estimate its cost of capital. You obtained the following data: D1 = $1.75; P0 = $35.00; g = 7.00% (constant); and F = 5.00%. What is the cost of equity raised by selling new common stock?
15.33%
15.08%
9.32%
10.06%
12.26%
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Solution Summary
This solution uses the Gordon Dividend Growth Model to determine required rate of return. All calculations are shown.
Solution Preview
The Gordon Dividend Growth Model states that the price of stock = next dividend/(required rate of return-growth rate). We can restate this formula to account ...
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