Question

# 1. Tapley has a stock price of \$88/share, a current dividend of \$4/share, and a growth...

1. Tapley has a stock price of \$88/share, a current dividend of \$4/share, and a growth rate of 10%. Additionally, the flotation expenses it faces in the external markets will be tiered based on the volume of stock it sells and they range from a low of 10% to a middle cost of 15% to a high cost of 20%.

a) Cost of Equity for Retained Earnings (Show your Work):

b) Cost of Equity with a 10% flotation expense (Show your Work):

c) Cost of Equity with a 15% flotation expense (Show your Work):

d) Cost of Equity with a 20% flotation expense (Show your Work):

WACC1 =

WACC2 =

WACC3 =

WACC4 =

WACC5 =

WACC6 =

Cost of Equity = 15%; Cost of Equity = 15.56%; Cost of Equity = 15.88% Cost of Equity = 16.25%

Cost of Equity capital = {(D1/Net Proceeds) +g}

 Do \$         4 Po \$       88 g (in %) 10% D1 = Do(1+g) \$      4.4 Present (a) 10% (b) 15% (c) 20% (d) Flotation Cost (Po * Flotation cost in % 0 \$    8.80 \$ 13.20 \$ 17.60 Net Proceed (Po - Flotation Cost) \$ 88.00 \$ 79.20 \$ 74.80 \$ 70.40 D1 \$    4.40 \$    4.40 \$    4.40 \$    4.40 Growth Rate (g) 10% 10% 10% 10% Cost of Equity {(D1/Net Proceeds) +g} 15.00% 15.56% 15.88% 16.25%

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