Cost of new common stock is the cost incurred by the company for issue new common stock. Calculate the cost new common stock as follows: Cost retained earnings = Expected dividend Current price × ( 1 − Flotation cost ) + Growth rate Flotation cost is cost incurred for issuing the common stock. Examples are underwriting fee, legal fee and registration fee. HHA has growth rate of 5% and current price is $28 and paid a recent dividend of $2.40. Cost of the new common stock is 15%.

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Chapter 11, Problem 10PROB

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Cost of new common stock is the cost incurred by the company for issue new common stock.

Calculate the cost new common stock as follows:

Cost retained earnings=Expected dividendCurrent price×(1−Flotation cost)+Growth rate

Flotation cost is cost incurred for issuing the common stock. Examples are underwriting fee, legal fee and registration fee.

HHA has growth rate of 5% and current price is $28 and paid a recent dividend of $2.40. Cost of the new common stock is 15%.

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