Answer:
The cost of new common stock equity would be 17.96%
Explanation:
In order to calculate the cost of new common stock equity we would have to make the following calculation:
cost of new common stock equity=(D1/Current price-flotation costs)+Growth rate
According to the given data we have the following:
Growth rate=8.5%
flotation costs=$6.25 per share
stock price=$55.00
dividend=$4.25
Therefore, cost of new common stock equity=(4.25*1.085)/(55-6.25)+0.085
cost of new common stock equity=(4.61125/48.75)+0.085
cost of new common stock equity=17.96%
The cost of new common stock equity would be 17.96%
