13 April, 07:58

The Evanec Company's next expected dividend, D1, is \$3.03; its growth rate is 5%; and its common stock now sells for \$34.00. New stock (external equity) can be sold to net \$28.90 per share.a. What is Evanec's cost of retained earnings?b. What is Evanec's percentage flotation cost?c. What is Evanec's cost of new common stock?

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Answers (1)
1. 13 April, 09:08
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(a) 14%

(b) 15%

(c) 15.48%

Explanation:

cost of retained earnings:

= (\$3.03 : \$34) + 0.05

= 0.09 + 0.05

= 14%

Therefore, the Evanec's cost of retained earnings is 14%

Flotation cost percentage:

= [ (\$34 - \$28.90) : \$34] * 100

= 0.15 * 100

= 15%

Therefore, the Evanec's percentage flotation cost is 15%.

Cost of new common stock:

= (\$3.03 : \$28.90) + 0.05

= 0.1048 + 0.05

= 15.48%

Therefore, the Evanec's cost of new common stock is 15.48%.
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