Cost of Common Equity with Flotation Ballack CoSolutionHi Pl

Cost of Common Equity with Flotation

Ballack Co.

Solution

Hi,

Please find the detailed answer as follows:

Dividend Yield = Dividend Per Share/Price Per Share

Dividend Per Share = 4%*37 = 1.48

Cost of New Equity = Dividend*(1+Growth Rate)/(Stock Price - Flotation Cost) + Growth Rate = 1.48*(1+9%)/(37 - 37*5%) + 9% = 13.59%

Thanks.