Question

430 - Principles of Finance Sect.21 estion 12 yet answered ked out of Adventure Outfitter Corp. can sell common stock for $27 per share and its investors require a 17% return. However, the administrative or flotation costs associated with selling the stock amount to $2.70 per share. What is the cost of capital for Adventure Outfitter if the corporation raises money by selling common stock? Raquestion Select one: O A. 18.33% O B.27.00% o C 18.89% O D. 17.00% Previous page Next page

Answer 1

c.18.89%.

required return of investors =$27 per share*17%

=>$4.59.

net proceeds form sale of share = $27 -2.70 floatation cost

=>$24.30.

cost of capital = investors return / net proceeds

=>$4.59/24.30*100

=>18.89%.