The common stock for the Bestsold Corporation sells for $58. If a new issue is sold, the
Question:
The common stock for the Bestsold Corporation sells for $58. If a new issue is sold, the flotation costs are estimated to be 8 percent. The company pays 50 percent of its earnings in dividends, and a $4 dividend was recently paid. Earnings per share 5 years ago were $5. Earnings are expected to continue to grow at the same annual rate in the future as during the past 5 years. The firm’s marginal tax rate is 21 percent. Calculate the cost of
(a) Internal common equity
(b) External common equity.
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If the firm pays out 50 percent of its earnings in dividends its recent earnings must have been 8 4 ...View the full answer
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Related Book For 
Foundations Of Finance
ISBN: 9780135160619
10th Edition
Authors: Arthur J. Keown, John H. Martin, J. William Petty
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