Javits & Sons common stock currently trades at $30.00 a share. It is expected to pay an

Question:

Javits & Sons’ common stock currently trades at $30.00 a share. It is expected to pay an annual dividend of $3.00 a share at the end of the year (D1 ! $3.00), and the constant growth rate is 5% a year.

a. What is the company’s cost of common equity if all of its equity comes from retained earnings?

b. If the company issued new stock, it would incur a 10% flotation cost. What would be the cost of equity from new stock?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...