Question

In order to meet their capital needs for the next year at Furman need to sell some additional shares of their class a common stock. Flotation costs are estimated to be $2.50 per share. Class a shares currently trading at $25 and most recently paid a dividend of $1.50 per share. The firm expect to grow at a constant 4% for the for seeable future. Calculate the firms cost of common equity from new shares.

6.93%, 6.24%, 6%, 6.67%

Answer 1

Current share price	25.00
Floatation cost	2.50
Net proceeds	22.50
Dividend paid	1.50
Cost of equity	6.667%
So option D is correct