Barton Electronics wants you to calculate its cost of common stock. During the n

Question

Barton Electronics wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D1) of $1.70 per share, and the current price of its common stock is $34 per share. The expected growth rate is 8 percent.

Compute the cost of retained earnings (Ke). (Hint: Use appropriate formula)(Round your answer to 2 decimal places. Omit the "%" sign in your response.)

If a $2 flotation cost is involved, compute the cost of new common stock (Kn). (Hint: Use appropriate formula)(Round your intermediate and final answers to 2 decimal places. Omit the "%" sign in your response.)

Barton Electronics wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D1) of $1.70 per share, and the current price of its common stock is $34 per share. The expected growth rate is 8 percent.

Explanation / Answer

D1=1.70, Po=34, g=8% So Ke = D1/P0 + g = 1.70/34 + 8% = 13.00% ..............Ans (a) With F=$2, Kn = D1/(P0-F) + g = 1.70/(34-2) +8% = 13.31% ...........Ans (b)

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