Question

Barton Industries expects next year's annual dividend, D₁, to be $2.50 and it expects dividends to grow at a constant rate g = 4.2%. The firm's current common stock price, P₀, is $22.90. If it needs to issue new common stock, the firm will encounter a 5.9% flotation cost, F. Assume that the cost of equity calculated without the flotation adjustment is 12% and the cost of old common equity is 11.5%. What is the flotation cost adjustment that must be added to its cost of retained earnings? Round your answer to 2 decimal places. Do not round intermediate calculations.
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What is the cost of new common equity considering the estimate made from the three estimation methodologies? Round your answer to 2 decimal places. Do not round intermediate calculations.

Answer 1

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