Homework Answers
Solution:
Last year dividend (D0)= $0.70
Growth rate (g)= 15%
Next expected dividend ( D1) = 0.70*(1+0.15)= $0.805
Current price = $23.80
Flotation cost =10%
Current price After flotation cost ( P0)= $23.80*(1-0.10) = $21.42
Cost of internal common equity = (D1/P0 )+g
Cost of internal common equity = ($0.805/$21.42) +0.15= 0.1876 or 18.76%
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