The ordinary shares of ABC Company are currently trading at $6. A new share would be made at an offer price of $5.90. Issue costs are expected to be 4% of the proceeds of the issue. The last dividend was $0.60 and the next dividend is due a year from now. The estimated growth rate is 4% p.a. What is ABC Company's after tax cost of an ordinary share issue is: Select one: A. 15% B. 13% C. 16% D. 14%
The ordinary shares of ABC Company are currently trading at $6. A new share would be made at an offer price of $5.90. Issue costs are expected to be 4% of the proceeds of the issue. The last dividend was $0.60 and the next dividend is due a year from now. The estimated growth rate is 4% p.a. What is ABC Company's after tax cost of an ordinary share issue is: Select one: A. 15% B. 13% C. 16% D. 14%
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 7P
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![The ordinary shares of ABC Company are currently trading at $6. A new share would be made at an offer price of
$5.90. Issue costs are expected to be 4% of the proceeds of the issue. The last dividend was $0.60 and the next
dividend is due a year from now. The estimated growth rate is 4% p.a.
What is ABC Company's after tax cost of an ordinary share issue is:
Select one:
A. 15%
B. 13%
C. 16%
D. 14%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F109901e6-2d23-4bcf-920e-827602fc3355%2F50e66948-f58c-4585-af4d-ac89b553c697%2Fgjb2zy9_processed.png&w=3840&q=75)
Transcribed Image Text:The ordinary shares of ABC Company are currently trading at $6. A new share would be made at an offer price of
$5.90. Issue costs are expected to be 4% of the proceeds of the issue. The last dividend was $0.60 and the next
dividend is due a year from now. The estimated growth rate is 4% p.a.
What is ABC Company's after tax cost of an ordinary share issue is:
Select one:
A. 15%
B. 13%
C. 16%
D. 14%
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