Question

Barton Industries expects next year's annual dividend,
D_{1}, to be $2.10 and it expects dividends to grow at a
constant rate g_{L} = 4.9%. The firm's current common stock
price, P_{0}, is $24.60. If it needs to issue new common
stock, the firm will encounter a 5.2% 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.

%

What is the cost of new common equity? Round your answer to 2
decimal places. Do not round intermediate calculations.

%

Answer #1

**Answer : Calculation of Flotation Cost adjustment
that must be added to retained earnings:**

Cost of Equity = {Expected Dividend / [Current Price * (1 - Flotation Cost)]} + growth rate

= {2.10 / [24.60 * (1 - 0.052)]} + 0.049

= {2.10 / 23.3208} + 0.049

= 0.13904836883 or 13.90%

Cost of equity calculated without the flotation adjustment is 12% and the cost of old common equity is 11.5%.

**Flotation Cost adjustment = 13.90% -
12%**

**= 1.90%**

**(b.) Cost of New Common Equity = Cost of old
common Equity + Flotation Cost
adjustment**

**= 11.5% + 1.90%**

**= 13.40%**

Barton Industries expects next year's annual dividend,
D1, to be $1.70 and it expects dividends to grow at a
constant rate gL = 4.9%. The firm's current common stock
price, P0, is $25.00. If it needs to issue new common
stock, the firm will encounter a 4.7% 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...

Barton Industries expects next year's annual dividend,
D1, to be $2.20 and it expects dividends to grow at a
constant rate gL = 4.5%. The firm's current common stock
price, P0, is $20.30. If it needs to issue new common
stock, the firm will encounter a 5.4% 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...

Barton Industries expects next year's annual dividend, D1, to be
$2.00 and it expects dividends to grow at a constant rate g = 4%.
The firm's current common stock price, P0, is $21.90. If it needs
to issue new common stock, the firm will encounter a 4.9% 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...

Quantitative Problem: Barton Industries expects
next year's annual dividend, D1, to be $1.70 and it
expects dividends to grow at a constant rate gL = 4.7%.
The firm's current common stock price, P0, is $24.50. If
it needs to issue new common stock, the firm will encounter a 5%
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...

Barton Industries expects next year's annual dividend, D1, to be
$2.30 and it expects dividends to grow at a constant rate gL = 5%.
The firm's current common stock price, P0, is $23.50. If it needs
to issue new common stock, the firm will encounter a 4.6% flotation
cost, F. 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.

Barton Industries expects next year's annual dividend,
D1, to be $2.40 and it expects dividends to grow at a
constant rate g = 4.4%. The firm's current common stock price,
P0, is $21.40. If it needs to issue new common stock,
the firm will encounter a 5% 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...

Barton Industries expects next year's annual dividend, D1, to be
$2.40 and it expects dividends to grow at a constant rate g = 5%.
The firm's current common stock price, P0, is $21.80. If it needs
to issue new common stock, the firm will encounter a 5.3% 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...

Barton Industries expects next year's annual dividend, D1, to be
$1.60 and it expects dividends to grow at a constant rate g = 4%.
The firm's current common stock price, P0, is $20.70. If it needs
to issue new common stock, the firm will encounter a 5.7% 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...

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...

1a
Barton Industries expects next year's annual dividend,
D1, to be $2.30 and it expects dividends to grow at a
constant rate g = 4.9%. The firm's current common stock price,
P0, is $25.00. If it needs to issue new common stock,
the firm will encounter a 4.5% flotation cost, F. What is the
flotation cost adjustment that must be added to its cost of
retained earnings? Do not round intermediate calculations. Round
your answer to two decimal places.
_____%...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 10 minutes ago

asked 20 minutes ago

asked 27 minutes ago

asked 43 minutes ago

asked 47 minutes ago

asked 49 minutes ago

asked 50 minutes ago

asked 58 minutes ago

asked 58 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago