The Evanec Company\'s next expected dividend, D1, is $2.59; its growth rate is 7
ID: 2826665 • Letter: T
Question
The Evanec Company's next expected dividend, D1, is $2.59; its growth rate is 7%; and its common stock now sells for $37. New stock (external equity) can be sold to net $31.45 per share.
What is Evanec's cost of retained earnings, rs? Round your answer to two decimal places. Do not round your intermediate calculations.
rs = %
What is Evanec's percentage flotation cost, F? Round your answer to two decimal places.
F = %
What is Evanec's cost of new common stock, re? Round your answer to two decimal places. Do not round your intermediate calculations.
Explanation / Answer
Cost of retained earnings=(D1/Current price)+Growth rate
=(2.59/37)+0.07
=14%
% floatation cost=(Current price of stock-Current net price of external equity)/Current price of stoc
=(37-31.45)/37
=15%
cost of new common stock=(D1/Current net price)+Growth rate
=(2.59/31.45)+0.07
=15.24%(Approx).
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