Cost of equity) The common stock for the Bestsold Corporation sells for $58. If a new issue is sold, the flotation costs are estimated to be 8 percent. The company pays 50 percent of its earnings in dividends, and a $4.00 dividend was recently paid. Earnings per share 5 years ago were $5.00. Earnings are expected to continue to grow at the same annual rate in the future as during the past 5 years. The firm's marginal tax rate s 34 percent. Calculate the cost of (a) internal common equity and (b) external common equity. a. What is the firm's cost of internal common equity? % (Round to two decimal places.)

Cost of equity) The common stock for the Bestsold Corporation sells for $58. If a new issue is sold, the flotation costs are estimated to be 8 percent. The company pays 50 percent of its earnings in dividends, and a $4.00 dividend was recently paid. Earnings per share 5 years ago were $5.00. Earnings are expected to continue to grow at the same annual rate in the future as during the past 5 years. The firm's marginal tax rate s 34 percent. Calculate the cost of (a) internal common equity and (b) external common equity. a. What is the firm's cost of internal common equity? % (Round to two decimal places.)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 8P

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(Cost of equity) The common stock for the Bestsold Corporation sells for $62. If a new issue is sold, the flotation costs are estimated to be 11 percent. The company pays 50 percent of its earnings in dividends, and a $3.50 dividend was recently paid. Earnings per share 6 years ago were $5.00. Earnings are expected to continue to grow at the same annual rate in the future as during the past 6 years. The firm's marginal tax rate is 32 percent. Calculate the cost of (a) internal common equity and (b) external common equity. a. What is the firm's cost of internal common equity? % (Round to two decimal places.) b. What is the firm's cost of external common equity? % (Round to two decimal places.) --
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Tip Top Hats (TTH) is expected to grow at a 2 percent rate for as long as it is in business. Currently the company's common stock is selling for $36 per share. The most recent dividend paid by TTH was $2.00 per share. If new common stock is issued, TTH will incur flotation costs equal to 8.0 percent. What is the company's cost of retained earnings? Round your answer to two decimal places. % What is its cost of new common equity? Round your answer to two decimal places. %
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