COST OF EQUITY WITH AND WITHOUT FLOTATION
Jarett & Sons's common stock currently trades at $39.00 a share. It is expected to pay an annual dividend of $3.00 a share at the end of the year (D_{1} = $3.00), and the constant growth rate is 5% a year.
a.Cost of equity=(D1/Current price)+Growth rate
=(3/39)+0.05
=12.69%(Approx).
b.Cost of equity=(D1/Current price(1-Flotation cost)+Growth rate
=(3/39(1-0.08))+0.05
=(3/35.88)+0.05
=13.36%(Approx).
COST OF EQUITY WITH AND WITHOUT FLOTATION Jarett & Sons's common stock currently trades at $39.00...
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