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Your company’s stock sells for P50 per share, its last dividend was P2.00, its growth rate is a constant 5 percent, and the company will incur a flotation cost of 20 percent if it sells new common stock. What is the firm’s cost of new equity, kn?

Your company’s stock sells for P50 per share, its last dividend was P2.00, its growth rate is a constant 5 percent, and the company will incur a flotation cost of 20 percent if it sells new common stock. What is the firm’s cost of new equity, kn?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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1. Your company’s stock sells for P50 per share, its last dividend was P2.00,
its growth rate is a constant 5 percent, and the company will incur a
flotation cost of 20 percent if it sells new common stock. What is the firm’s
cost of new equity, kn?


2. Iann-Jam Corporation has established a target capital structure of 40
percent debt and 60 percent common equity. The current market price of
the firm’s stock is P30; its last dividend was P2.20, and its expected
dividend growth rate is 8 percent. What will Iann-Jam’s marginal cost of
retained earnings be?

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