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Save Submit Assignment for Grading Questions Problem 10.13 s Question 9 of 20 » Check My Work 8. 9 10. Click here to read the eBook: Cost of New Common Stock, re COST OF COMMON EQUITY WITH FLOTATION Banyan Co.'s common expected long-run dividend payout ratio is 30%, and the expected return on equity (ROE) is 16%. New stock can flotation cost of 15% would be incurred what would be the cost of new equity? Round your answer to two decimal places. Do not round your intermediate calculations. o stock currently sells for $43.25 per share. The growth rate is a constant 11.2%, and the company has an expected dividend yield of 6%. The be sold to the public at the current price, but a 12. 13. o 17.19 *96 15. Hide Feedback 16. Incorrect 18. 19. 20. Check My Worlk 33,954

Explanation / Answer

1.

Current Stock price = $43.25

Dividend yield = 6%

Expected dividend = $43.25 × 6%

= $2,595.

Floatation cost = 15%

Net proceed from sale of new equity = $43.25 × (1 - 15%)

= $35.9125

Cost of new equity = (Expected dividend / net proceed from sale of new equity) + Growth rate

= ($2.595 / $35.9125) + 11.20%

= 7.23% + 11.20%

= 18.43%

Cost of new equity is 18.43%.

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