Blue Inc.’s has insufficient retained earnings to fund capital projects and must, therefore, issue new common stock. Blue Inc.’s stock currently has a price of P50 per share and is expected to pay a year-end dividend of P5 per share. The dividend is expected to grow at a constant rate of 2% per year. The new stock has an estimated flotation cost of P5 per share. What is the company’s cost of equity capital? a. 11.11% b. 12.23% c. 13.11% d. 14.00%
Blue Inc.’s has insufficient retained earnings to fund capital projects and must, therefore, issue new common stock. Blue Inc.’s stock currently has a price of P50 per share and is expected to pay a year-end dividend of P5 per share. The dividend is expected to grow at a constant rate of 2% per year. The new stock has an estimated flotation cost of P5 per share. What is the company’s cost of equity capital? a. 11.11% b. 12.23% c. 13.11% d. 14.00%
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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Blue Inc.’s has insufficient retained earnings to fund capital projects and must, therefore, issue new common stock. Blue Inc.’s stock currently has a price of P50 per share and is expected to pay a year-end dividend of P5 per share. The dividend is expected to grow at a constant rate of 2% per year. The new stock has an estimated flotation cost of P5 per share. What is the company’s cost of equity capital?
a. 11.11%
b. 12.23%
c. 13.11%
d. 14.00%
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