Info 3:

Use for the next FOUR problems

Steelers Wheels, Inc. anticipates addition to retained earnings of $19,200 this year. The company can raise debt at a 10% interest rate. The next dividend is expected to be $1.00 and the stock is selling for $10.26 a share with expected growth rate in dividends of 5%. Flotation cost on new common stock is 10%. Steelers Wheels has a capital structure of 50% debt, 50% equity and a tax rate of 40%.

What is the cost of newly issued stock?

Select one:

a. 12.22%

b. 10.83%

c. 15.83%

d. 14.75%