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COST OF COMMON EQUITY WITH FLOTATION Ballack Co.’s common stock currently sells for $46.75 per share. The growth rate is a constant 12%, and the company has an expected dividend yield of 5%. The expected long-run dividend payout ratio is 25%, and the expected return on equity (ROE) is 16%. New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of new equity?

Sagot :

Parrain

Based on the stock price of Ballack Co., the dividend, and the growth rate, the cost of new equity is 17.26%.

What is Ballack Co's cost of new equity?

This can be found as:

= (Next dividend / (Current price x (1 - floatation cost) ) + Growth rate

Solving gives:

= ( (46.75 x 5%) / (46.75 x ( 1 - 5%)) + 12%

= ( 2.33 / 44.41) + 12%

= 17.26%

Find out more on cost of new equity at https://brainly.com/question/22984873.

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