Question

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

Answer 1

The flotation costs are Option C) 17.96%

Step-by-step 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).