Compute the flotation cost adjustment that must be added

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Reference no: EM132066323

Quantitative Problem: Barton Industries expects next year's annual dividend, D1, to be $2.20 and it expects dividends to grow at a constant rate g = 4.9%.

The firm's current common stock price, P0, is $21.40. If it needs to issue new common stock, the firm will encounter a 5.4% flotation cost, F. Assume that the cost of equity calculated without the flotation adjustment is 12% and the cost of old common equity is 11.5%.

What is the flotation cost adjustment that must be added to its cost of retained earnings? Round your answer to 2 decimal places. Do not round intermediate calculations.%

What is the cost of new common equity considering the estimate made from the three estimation methodologies? Round your answer to 2 decimal places. Do not round intermediate calculations.%

Reference no: EM132066323

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