XYZ estimates that if it issues new common stock, the flotation cost will be 15%. XYZ incorporates the flotation costs into the DCF approach. What is the estimated cost of newly issued common stock, considering the flotation cost? Please show work in Excel.
Homework Answers
cost of newly issued comon stock = 4.19(1.05)/50(1-.015)+.05
= 4.40/49.25
=.137 or 13.7%
alternative = 4.40/42.5+.05=.154 or 15.4%
between 13.7% -----15.4% will be the new cost
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XYZ estimates that if it issues new common stock, the flotation
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Question 19 Colemans common stock is currently selling for $50 share. Its last dividend (Do) was $4.19; and dividends are expected to grow at a constant rate of 5 percent in the foreseeable future. Coleman estimates that if it issues new common stock, the flotation cost will be 10 percent. Coleman incorporates the flotation costs into the DCF approach. What is the estimated cost of newly issued common stock, considering the flotation cost?
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