Given about a stock,
D1 = $1.3
P0 = $42.50
g = 7%
So, cost of retained earning using dividend growth model is
Cost of retained earning Ke = D1/P0 + g = 1.3/42.5 + 0.07 = 10.06%
When new equity is issued, flotation cost is F = 6%
So, now cost of issuing new equity = D1/(P0*(1-F)) + g = 1.3/(42.5*(1-0.06)) + 0.07 = 10.25%
9. You have been provided with the following data: D1 = $1.30; Po= $42.50; and g...
Assume that you are a consultant to Broske Inc., and you have been provided with the following data: D1 = $0.67; P0 = $47.50; and g = 8.00% (constant). What is the cost of equity from retained earnings?
5. The cost of new common stock True or False: The following statement accurately describes how firms make decisions related to issuing new common stock. The cost of issuing new common stock is calculated the same way as the cost of raising equity capital from retained earnings. False: Flotation costs need to be taken into account when calculating the cost of issuing new common stock, but they do not need to be taken into account when raising capital from retained...
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4. The cost of new common stock Aa Aa True or False: The following statement accurately describes how firms make decisions related to issuing new common stock. The cost of issuing new common stock is calculated the same way as the cost of raising equity capital from retained earnings O True: The cost of retained earnings and the cost of new common stock are calculated in the same manner, except that the cost of retained earnings is based on the...
The cost of issuing new common stock is calculated the same way as the cost of raising equity capital from retained earnings. True: The cost of retained earnings and the cost of new common stock are calculated in the same manner, except that the cost of retained earnings is based on the firm's existing common equity, while the cost of new common stock is based on the value of the firm's share price net of its flotation cost. False: Flotation...
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True or False: The following statement accurately describes how firms make decisions related to issuing new common stock If a firm needs additional capital from equity sources once its retained earnings breakpoint is reached, it will have to raise the capital by issuing new common stock. O True: Firms will raise all the equity they can from retained earnings before issuing new common stock, because capital from retained earnings is cheaper than capital raised from issuing new common stock. O...
True or False: The following statement accurately describes how firms make decisions related to issuing new common stock. If a firm needs additional capital from equity sources once its retained earnings breakpoint is reached, it will have to raise the capital by issuing new common stock. True: Firms will raise all the equity they can from retained earnings before issuing new common stock, because capital from retained earnings is cheaper than capital raised from issuing new common stock. False: Firms...