Javits & Sons\' common stock currently trades at $22.00 a share. It is expected

Question

Javits & Sons' common stock currently trades at $22.00 a share. It is expected to pay an annual dividend of $1.25 a share at the end of the year (D1 = $1.25), and the constant growth rate is 4% a year.What is the company's cost of common equity if all of its equity comes from retained earnings? Round your answer to two decimal places.If the company were to issue new stock, it would incur a 17% flotation cost. What would the cost of equity from new stock be? Round your answer to two decimal places

Explanation / Answer

ke = D1/P0 +g ke = 1.25/22+ 4% ke = 5.682% + 4% ke = 9.682% ke = 9.68% Approx Price                              22.00 Floatation Costs 17% Net proceeds = 22*(1-.17)                              18.26 ke = D1/P0 +g ke = 1.25/18.26 + 4% ke = 6.85% + 4% ke = 10.85%

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.