Questions Problem 10.07 Question 5 of 20 Check My Work (3 remaining) Click here

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Questions Problem 10.07 Question 5 of 20 Check My Work (3 remaining) Click here to read the eBook: The Cost of Retained Earnings, r, Click here to read the eBook: Cost of New Common Stock, re COST OF COMMON EQUITY WITH AND WITHOUT FLOTATION The Evanec Company's next expected dividend, D1, is $3.77; its growth rate is 4%; and o its common stock now sells for $35. New stock (external equity) can be sold to net $29.75 per share. a. What is Evanec's cost of retained earnings, rs? Round your answer to two decimal places. Do not round your intermediate calculations O 12. ?| b. what is Evanec's percentage flotation cost, F? Round your answer to two decimal 14. 15. 16. c. What is Evanec's cost of new common stock, re? Round your answer to two decimal O places. Do not round your intermediate calculations. Check My Work (3 remaining) esc 2 3 4 6 lab

Explanation / Answer

1. Evanec cost of retained earnings

rs = (D1/P0)+g

= ($3.77/$35) + 0.04

= 14.77%

2. Evanec percentage of flotation cost

F=($35-$29.75)/$35

= 15%

3. Evanec's cost of new common stock

c.re = D1/(P0(1-F))+g

= 3.77/(35(1-0.15))+ 0.04

= 16.67%

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