Tax shield from the amortization of flotation costs

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Reference no: EM131839745

1. Messman Manufacturing will issue common stock to the public for $45. The expected dividend and growth in dividends are $3.00 per share and 4%, respectively. If the flotation cost is 14% of the issue's gross proceeds, what is the cost of external equity, re? Round your answer to two decimal places. ______%

2. Suppose a company will issue new 25-year debt with a par value of $1,000 and a coupon rate of 8%, paid annually. The tax rate is 40%. If the flotation cost is 3% of the issue proceeds, then what is the after-tax cost of debt? Disregard the tax shield from the amortization of flotation costs. Round your answer to two decimal places. ______%

Reference no: EM131839745

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