Hi, may someone please help with these problems. And if possible, may you also s

Question

Hi, may someone please help with these problems. And if possible, may you also show me how you work it out.--Thank you.

1) You have been provided with the following data: D1 = $1.30; P0 = $42.50; and g = 7.00% (constant). What is the cost of equity from retained earnings based on the constant growth model?

2) You have been provided with the following data: D1 = $1.30; P0 = $42.50; and g = 7.00% (constant). What is the cost of equity from retained earnings based on the constant growth model?

3) You have been provided with the following data: D1 = $1.30; P0 = $42.50; and g = 7.00% (constant). If your company is going to issue new equity, it will incur an additional 6% flotation costs what is the cost of issuing new equity?

Explanation / Answer

1) You have been provided with the following data: D1 = $1.30; P0 = $42.50; and g = 7.00% (constant). What is the cost of equity from retained earnings based on the constant growth model?

Solution-

D1=$1.30 P0 =$42.50 g=7.00%

rs = D1/P0+g

rs =$1.30 / $42.50 +0.07=10.06%

2) You have been provided with the following data: D1 = $1.30; P0 = $42.50; and g = 7.00% (constant). What is the cost of equity from retained earnings based on the constant growth model?

Solution-

D1=$1.30 P0 =$42.50 g=7.00%

rs = D1/P0+g

rs =$1.30 / $42.50 +0.07=10.06%

3) You have been provided with the following data: D1 = $1.30; P0 = $42.50; and g = 7.00% (constant). If your company is going to issue new equity, it will incur an additional 6% flotation costs what is the cost of issuing new equity?

Solution-

D1=$1.30 P0 =$42.50 g=7.00% F=6%

kc=D1 /  P0 (1-F) +g

kc=$1.30 / $42.50 (1-0.06) +0.07

Kc=0.1025 or 10.25%

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