You are a finance intern at Chambers and Sons and they have asked you to help es
ID: 2541836 • Letter: Y
Question
You are a finance intern at Chambers and Sons and they have asked you to help estimate the company’s cost of common equity. You obtained the following D1=$1.25 Po =$27.50 gl =5% constant and F =6% What is the cost of equity raises by selling new common stock? A 10.64% B 10.23% C 9.84% D 9.44% E 9.06% You are a finance intern at Chambers and Sons and they have asked you to help estimate the company’s cost of common equity. You obtained the following D1=$1.25 Po =$27.50 gl =5% constant and F =6% What is the cost of equity raises by selling new common stock? A 10.64% B 10.23% C 9.84% D 9.44% E 9.06%Explanation / Answer
Cost of equity=(D1/Current price(1-floatation cost)+Growth rate
=1.25/(27.5(1-0.06))+0.05
=(1.25/25.85)+0.05
which is equal to
=9.84%(Approx)
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