Question
In: Finance
5. 5: The Cost of Capital: Cost of New Common Stock Quantitative Problem: Barton Industries expects next...
5. 5: The Cost of Capital: Cost of New Common Stock
Quantitative Problem: Barton Industries expects next year's annual dividend, D1, to be $2.20 and it expects dividends to grow at a constant rate g = 5%. The firm's current common stock price, P0, is $25.00. If it needs to issue new common stock, the firm will encounter a 5.7% flotation cost, F. What is the flotation cost adjustment that must be added to its cost of retained earnings? Do not round intermediate calculations. Round your answer to two decimal places.
%
What is the cost of new common equity considering the estimate made from the three estimation methodologies? Do not round intermediate calculations. Round your answer to two decimal places.
%
Solutions
Expert Solution
What is the flotation cost adjustment that must be added to its cost of retained earnings?
flotation cost adjustment = Cost of New Common Stock - Cost of retained earnings
flotation cost adjustment = 14.33% - 13.80%
flotation cost adjustment = 0.53%
What is the cost of new common equity considering the estimate made
from the three estimation methodologies?
cost of new common equity = 14.33%
Please upvote if satisfied
jeff jeffy answered 2 years agoRelated Solutions
Quantitative Problem: Barton Industries expects next year's annual dividend, D1, to be $2.00 and it expects...
Quantitative Problem: Barton Industries expects
next year's annual dividend, D1, to be $2.00 and it
expects dividends to grow at a constant rate g = 4%. The firm's
current common stock price, P0, is $20.60. If it needs
to issue new common stock, the firm will encounter a 5.4% flotation
cost, F. Assume that the cost of equity calculated without the
flotation adjustment is 12% and the cost of old common equity is
11.5%. What is the flotation cost adjustment...
Quantitative Problem: Barton Industries expects next year's annual dividend, D1, to be $2.00 and it expects...
Quantitative Problem: Barton Industries expects
next year's annual dividend, D1, to be $2.00 and it
expects dividends to grow at a constant rate g = 4.8%. The firm's
current common stock price, P0, is $21.90. If it needs
to issue new common stock, the firm will encounter a 5.4% flotation
cost, F. Assume that the cost of equity calculated without the
flotation adjustment is 12% and the cost of old common equity is
11.5%. What is the flotation cost adjustment...
Quantitative Problem: Barton Industries expects next year's annual dividend, D1, to be $2.10 and it expects...
Quantitative Problem: Barton Industries expects next year's
annual dividend, D1, to be $2.10 and it expects dividends to grow
at a constant rate g = 4.1%. The firm's current common stock price,
P0, is $24.40. If it needs to issue new common stock, the firm will
encounter a 4.5% flotation cost, F. Assume that the cost of equity
calculated without the flotation adjustment is 12% and the cost of
old common equity is 11.5%.
What is the flotation cost adjustment...
Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM,...
Quantitative Problem: Barton Industries estimates its cost of
common equity by using three approaches: the CAPM, the
bond-yield-plus-risk-premium approach, and the DCF model. Barton
expects next year's annual dividend, D1, to be $1.60 and it expects
dividends to grow at a constant rate g = 5.1%. The firm's current
common stock price, P0, is $29.00. The current risk-free rate, rRF,
= 4.4%; the market risk premium, RPM, = 5.7%, and the firm's stock
has a current beta, b, = 1.3....
Barton Industries expects next year's annual dividend, D1, to be $1.70 and it expects dividends to...
Barton Industries expects next year's annual dividend, D1, to be
$1.70 and it expects dividends to grow at a constant rate g = 4.5%.
The firm's current common stock price, P0, is $23.00. If it needs
to issue new common stock, the firm will encounter a 4.8% flotation
cost, F. Assume that the cost of equity calculated without the
flotation adjustment is 12% and the cost of old common equity is
11.5%.
What is the flotation cost adjustment that must...
Barton Industries expects next year's annual dividend, D1, to be $1.60 and it expects dividends to...
Barton Industries expects next year's annual dividend, D1, to be
$1.60 and it expects dividends to grow at a constant rate g = 4.8%.
The firm's current common stock price, P0, is $20.90. If it needs
to issue new common stock, the firm will encounter a 5.3% flotation
cost, F. Assume that the cost of equity calculated without the
flotation adjustment is 12% and the cost of old common equity is
11.5%.
What is the flotation cost adjustment that must...
Barton Industries expects next year's annual dividend, D1, to be $2.10 and it expects dividends to...
Barton Industries expects next year's annual dividend, D1, to be
$2.10 and it expects dividends to grow at a constant rate gL =
4.9%. The firm's current common stock price, P0, is $24.20. If it
needs to issue new common stock, the firm will encounter a 5.7%
flotation cost, F. Assume that the cost of equity calculated
without the flotation adjustment is 12% and the cost of old common
equity is 11.5%. What is the flotation cost adjustment that must...
Quantitative Problem 1: Hubbard Industries just paid a common dividend, D0, of $1.20. It expects to...
Quantitative Problem 1: Hubbard Industries just
paid a common dividend, D0, of $1.20. It expects to grow
at a constant rate of 4% per year. If investors require a 9% return
on equity, what is the current price of Hubbard's common stock? Do
not round intermediate calculations. Round your answer to the
nearest cent.
$ ________ per share
Zero Growth Stocks:
The constant growth model is sufficiently general to handle the
case of a zero growth stock, where the dividend...
Quantitative Problem 1: Hubbard Industries just paid a common dividend, D0, of $1.80. It expects to...
Quantitative Problem 1: Hubbard Industries just
paid a common dividend, D0, of $1.80. It expects to grow
at a constant rate of 2% per year. If investors require a 10%
return on equity, what is the current price of Hubbard's common
stock? Round your answer to the nearest cent. Do not round
intermediate calculations.
$_____ per share
Zero Growth Stocks:
The constant growth model is sufficiently general to handle the
case of a zero growth stock, where the dividend is...
Quantitative Problem 1: Hubbard Industries just paid a common dividend, D0, of $1.30. It expects to...
Quantitative Problem 1: Hubbard Industries just paid a common
dividend, D0, of $1.30. It expects to grow at a constant rate of 4%
per year. If investors require a 12% return on equity, what is the
current price of Hubbard's common stock? Do not round intermediate
calculations. Round your answer to the nearest cent. $ per share
Zero Growth Stocks: The constant growth model is sufficiently
general to handle the case of a zero growth stock, where the
dividend is...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- 7. A health psychologist knew that corporate executives in general have an average score of 80...
- Submission Guidelines This assignment may be submitted for full credit until Friday, October 4th at 11:59pm....
- Cara Ryder managers a ski school in a large resort and is trying to develop a...
- 1. Like most senses, the neurons that carry that carry the somatic sensations [touch, vibration, two-point...
- Explain how the Court has at times allowed the restriction of the civil rights of minority...
- 1. How do psychoanalytic and behavioral interpretations of childhood experience differ? 2. How does selective attention...
- Procter & Gamble Embraces Continuous Planning and Execution The Procter & Gamble Company (P&G) is an...
ADVERTISEMENT