What would be the cost of new common stock equity for Tangshan Mining if the firm just paid a dividend of $4.25, the stock price is $55.00, dividends are expected to grow at 8.5 percent indefinitely, and flotation costs are $6.25 per share?

A) 16.88%

B) 9.46%

C) 17.96%

D) none of the above

Question

Business

Ann Scott

19 March, 15:28

What would be the cost of new common stock equity for Tangshan Mining if the firm just paid a dividend of $4.25, the stock price is $55.00, dividends are expected to grow at 8.5 percent indefinitely, and flotation costs are $6.25 per share?

A) 16.88%

B) 9.46%

C) 17.96%

D) none of the above

+5

Answers (1)

Know the Answer?

Madden Horton · Answer 1

The flotation costs are Option C) 17.96%

Explanation:

Consider the following equation

Cost of common stock = (D1/Current price-flotation costs) + Growth rate

= (4.25*1.085) / (55-6.25) + 0.085

= (4.61125/48.75) + 0.085

which is equal to

=Flotations costs asre 17.96% (Approx).

What would be the cost of new common stock equity for Tangshan Mining if the firm just paid a dividend of $4.25, the stock price is $55.00, dividends are expected to grow at 8.5 percent indefinitely, and flotation costs are $6.25 per share?A) 16.88%B) 9.46%C) 17.96%D) none of the above

What would be the cost of new common stock equity for Tangshan Mining if the firm just paid a dividend of $4.25, the stock price is $55.00, dividends are expected to grow at 8.5 percent indefinitely, and flotation costs are $6.25 per share?

A) 16.88%

B) 9.46%

C) 17.96%

D) none of the above