Question

Uber plans to sell shares of common stock to raise capital funds. They estimate that each share of common stock will sell for $145, but their investment bank will charge a 5% fee. The face value is $145 per share. Uber also plans to pay a dividend each year of 7% while maintaining an annual growth rate of 8% to keep their shareholders happy. What is Uber's cost of capital of this common stock (effective yearly percentage rate)

Answer 1

Answer:

cost of capital of common stock = 13.38 %

Explanation:

given data

common stock sell = $145

fee charge= 5%

face value = $145 per share

dividend = 7%

growth rate = 8%

to find out

Uber cost of capital of common stock

solution

we get here cost of capital of  common stock that is express as

cost of capital of common stock = $\frac{D1}{Po-f}$ + g    ....................1

here D1 is dividend at end year and Po is today price and f is flotation rate and g is growth rate

so we get here

cost of capital of common stock = $\frac{113*0.05}{113-113*0.07}$ + 0.08    

cost of capital of common stock = 0.133763

cost of capital of common stock = 13.38 %