This preview shows page 1. Sign up to view the full content.
Unformatted text preview: The company expects that its dividend will grow at a constant rate of 6 percent a year. The companys stock price is $20. The companys tax rate is 40 percent. The company anticipates that it will add $4,500,000 to its retained earnings account over the coming year, but that it will also need to raise new common stock over the year. Its investment bankers anticipate that the total flotation cost for new common stock will equal 12.50 percent of the amount issued (or price per share) -- you may assume that the company accounts for flotation costs by adjusting the component cost of capital (i.e., it determines a price that it will net and then uses a DCF approach to determine r e ). Given this information, determine what the companys average cost of capital will be for the entire $12,000 to be raised. A. 10.33% B. 8.68% C. 9.78% D. 10.88% E. 9.23%...
View Full Document
This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
- Spring '08
- Cost Of Capital