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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

Respuesta :

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%

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