cost of equity with and without flotationjavits, Financial Accounting

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cost of equity with and without flotationjavits

Cost of equity with and without flotation

Javits & Sons' common stock currently trades at $30 a share. It is expected to pay an annual dividend of $3.00 a share at the end of the year (D1=$3.00), and the constant growth rate is 5% a year.

a) What is the company's cost of common equity if all of its equity comes from retained earnings?

b) If the company were to issue new stock, it would incur a 10% flotation cost. What would the cost of equity from new stock be?

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Financial Accounting: cost of equity with and without flotationjavits

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Financial Accounting: cost of equity with and without flotationjavits

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