Finance for Managers MGT-325-OL01 Nathan Evans&1 9/24/18 3:12 PM omework: Assign

Question

Finance for Managers MGT-325-OL01 Nathan Evans&1 9/24/18 3:12 PM omework: Assignment 5 core: 0 of 10 pts 9-11 (similar to) Retained earnings versus new common stock Using the data for a firm shown in the tollowing table, calculate the cost of retained earnings and the cost of new common stok using the Sav 3 of 10 (0 complete) HW Score: 0%, 0 of 100 Question Help onstant-growth valuation model. (Cick an the loon localed on the top-ight corner of the data table below in order to copy its con predshoet) Projected Current market Dividend dividend per Underpricing Flotation cost price per share growth rate share next year per shareper share 3.30 66.00 7% $2.50 $1.75 . The cost of rotained earnas«D%,(Round to two doarral places )

Explanation / Answer

Current market price = $66

Under pricing per share =$2.50

Intrinsic value= 66+2.50=68.50

Cost of retained earning= (Divident/issue price per share)+growth rate

=(3.30/68.50)+0.07

=11.82%

Floating cost will increase the cost of issue of new common stock:-

Cost of issue of new common stock = (Divident/issue price per share)+growth rate

=(3.30/(68.50-1.75))+0.07

=11.94%

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