Question

You were recently hired by Scheuer Media Inc. to estimate its cost of capital. You obtained...

You were recently hired by Scheuer Media Inc. to estimate its cost of capital. You obtained the following data: Expected dividend at the end of the year (D 1) = $1.75; Current stock price is $115.00; the expected growth rate of diviend per year is 7.00% (constant); and flotation cost is 5.00%. What is the cost of equity raised by selling new common stock?\

a.

10.49%

b.

9.98%

c.

7.05%

d.

8.60%

e.

8.52%

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Answer #1


Given Dividend (D1) Stockprice (PO) Growth rate (G) Floatation cost () 1.75 115 7% 5% Cost of common equity Ке = D1/(PO(1-f))

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