Glaham Restaurants expects to pay a common stock dividend of $1.50 per share next year (d1)....

Glaham Restaurants expects to pay a common stock dividend of $1.50 per share next year (d1). Dividends are expected to grow at a 4% rate for the foreseeable future. Glaham’s common stock is selling for $18.50 per share and issuance costs are $3.50 per share. What is Glaham’s cost of external equity?

20.59%

12.11%

14.00%

10.00%

Expert Solution

Formula of Cost of External equity: {Dividend next year/ (Common stock selling price- Issuance cost)}

+ expected growth rate of dividend

= 1.5/ (18.50 - 3.50) + 4%

= 14%

ekkarill92 answered 1 year ago

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