Question: help needed with all questions please and thanks If a firm plans to issue new stock, flotation costs (irvestment bankers' fees) should not be ignored.
If a firm plans to issue new stock, flotation costs (irvestment bankers' fees) should not be ignored. There are two approoches to use to account for fiotation costs. The first approach is to add the sum of fotation costs for the debt, preferred, and common stock and add them to the initial investment cost, Becouse the investment cost is increased, the project's expected rate of return is reduced so it may not meet the firm's hurdle rate for acceptance of the project. The second approach involves adjusting the cost of common equity as follows: Cost of equity from new stock =re=P0(1r)D1+g The difference between the flotistion-adjusted cost of equity and the cost of equity calculated without the fotation adjustment represents the fotation cost odjustrient. Quantitative Problemt Barton Industries expects next year's anmal dividend, D D1, to be $2.40 and it expects dividends to grow at a constant rate 9=504. The firm's curtent common stock price, Po, is 320.00. If it needs to issue new common stock, the firm will encounter a 4.3% fiotation cost, F. What is the flotation cost adjustment. that must be added to its cost of retained earnings? Do not round intermediate calculations. Round your answer to two decomal places. What is the cost of new comimon equity consideting the estimate mash from the three estimabon methoyologies? Da not round intermediate calculations. Aound your. antwer to two decimal places
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