Question

Estimate the cost of common equity from the given information:
Exper vidend for next year = $1.75:
price = $42.50;
Growth rate= 7.00% (constant); and Flotation costs = 5.00%.
a) 10.77%
b) 11.33%
c) 11.11%
d) 12.50%
Answer​

Answer 1

Explanation:

estimate the cost of common equity from the given information expert within for next year is equal to dollar 1.75 size is equal to 42.5 growth rate is equal to 7.00% constant and floatation cost is equal to 5.00% a 10.7 75% B 11.3 3% c 11.11% d 12.50% answers so the correct answer is option C 11.11%

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Answer 2

The estimated cost of common equity is 11.33%

Explanation:

The formula to compute the estimated cost of equity is shown below:

= (Expected dividend for next year) ÷ (Price × 1 - flotation cost) + Growth rate

= ($1.75) ÷ ($42.50 × 1 - 0.05) + 0.07

= ($1.75) ÷ ($40.375) + 0.07

= 0.04334 + 0.07

= 0.1133 or 11.33%

Simply we minus the flotation cost from the price and applying the dividend discount model formula so that estimated percentage can come

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