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Pepsi [2]
3 years ago
5

Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $31.00 per share. The firm'

s dividend for next year is expected to be $5.30 with an annual growth rate of 7.0% thereafter indefinitely. If the firm issues new stock, the flotation costs would equal 14.0% of the stock's market value. The firm's marginal tax rate is 40%. What is the firm's cost of external equity?
Business
1 answer:
Setler [38]3 years ago
4 0

Answer:

Cost of external equity= 26.9%

Explanation

<em>According to the dividend valuation, the value of a stock is the present value of expected future dividends discounted at the required rate of return.</em>

The model can me modified to determined the cost of equity having flotation cost as follows:

Ke = D(1+r )/P(1-f) + g

Ke= Cost of equity

D- current dividend,

D(1+g) - dividend next year

p- price of stock - 31,00$

f - flotation cost - 14%

g- growth rate - 7%

Ke= 5.30/31× (1-0.14)  +  0.07

 = 0.2687997  × 100

= 26.9%

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D)

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No effect decrease

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Which of the following is a problem associated with the rational method of developing questionnaire items?
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Answer:

2. Participants might give socially desirable or false answers rather than honest ones because the questions are transparent.

Explanation:

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3 years ago
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Answer:

Option E.

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6 0
3 years ago
Charles, the president of an IT company, is friends with Levi, the CEO of Cyber Industries, a company that develops and manufact
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7 0
4 years ago
Jack Spratt is the production manager for a manufacturing firm that produces wizzy-gadgets and other items. The annual demand fo
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Answer:

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