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Compute the cost of issuing new equity to Montreal Trustco

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Question - Montreal Trustco expects to pay a dividend of $5 next year. Dividends are expected to grow at 3 percent forever and the market requires a rate of return of 7 percent on its stock. Montreal Trustco can issue new stock at $125 per share with flotation costs of $20 per share. The tax rate is zero. Compute the cost of issuing new equity to Montreal Trustco?

a) 3.00

b) 7%

c) 7.76%

d) 11.76

Reference no: EM132768803

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