Q$5($Chapter $11)(18$ marks$)$

Greenwood Technology's common stock is presently trading at $$37\mathrm{.}50$ per share. The firm anticipates an earnings per share $($EPS$)$ of $$2\mathrm{.}75$ for the current year, with an expected payout ratio of $70\%$ and a constant growth rate in dividends of $6\mathrm{.}00\%.$ If Greenwood Technology decides to issue new shares to the public at the current price, it will incur flotation costs of $8\%.$

a$.$ Explain how flotation costs affect the cost of new equity compared to retained earnings, and why companies might still opt to issue new stock despite these costs. $(4$ marks$)$

b$.$ Discuss the impact of dividend payout ratios and growth rates on a company's dividend policy and its implications for shareholder value. $(4$ marks$)$

c$.$ Calculate the cost of retained earnings for Greenwood Technology using the Dividend Growth Model. $(4$ marks$)$

d$.$ Determine the cost of new equity considering the flotation costs, and calculate by how much the cost of new stock exceeds the cost of retained earnings. $(6$ marks$)$