Homework Answers
Cost of equity = [D0 * (1 + g) / (Market price - flotation cost)] + g
D0 = $1.10
Price = $26
Flotation cost = $26 * 7% = $1.30
Cost of equity = [$1.10 * (1 + 0.07) / ($26 - $1.30)] + 0.07
24.70
Cost of equity = [1.177 / $24.70] + 0.07 = 0.11765
Cost of equity = 11.765%
or Cost of equity = 11.77% (rounded off to 2 decimals)
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