Banyan Co.'s common stock currently sells for $52.25 per share. The growth rate is a constant 3%, and the company has an expected dividend yield of 5%. The expected long-run dividend payout ratio is 50%, andthe expected return on equity (ROE) is 6.0%. New stock can be sold to the public at the current price, but a flotation cost of 15% would be incurred. What would be the cost of new equity? Do not round intermediatecalculations. Round your answer to two decimal places.%

Required Rate of Return= growth rate + expected Dividend yield= 3%+5%= 8%

Answered: Banyan Co.'s common stock currently…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Banyan Co.’s common stock currently sells for $57.25 per share. The growth rate is a constant 6%, and the company has an expected dividend yield of 4%. The expected long-run dividend payout ratio is 40%, and the expected return on equity (ROE) is 10.0%. New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of new equity? Do not round intermediate calculations. Round your answer to two decimal places.
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