Answer:
The cost of equity raised by selling new common stock = 9.84%
Explanation:
Given values, the Trahan Company has D1 = $1.25 , P0 = $27.50, g = 5%, F = 6%
Now, the company wants to calculate the cost of equity that will be arising due to the selling of new common stocks.
Below is the calculation.
Cost of equity = [tex]D1/(Po-F*P0) + g[/tex]
Cost of equity = [tex]1.25/(27.50-6%*27.50) + 5%[/tex]
Cost of equity =[tex]9.84%[/tex]
