What is flotation cost adjustment-cost of retained earnings

Assignment Help Financial Management
Reference no: EM131546622

Quantitative Problem: Barton Industries expects next year's annual dividend, D1, to be $2.40 and it expects dividends to grow at a constant rate g = 4.7%. The firm's current common stock price, P0, is $20.30. If it needs to issue new common stock, the firm will encounter a 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: EM131546622

Questions Cloud

What benefit are provided by the constant service time model : Discuss the advantages and disadvantages of queuing theory for an organization in the service industry.
What is the value of chi-square : Determine the value of x2 for 14 degrees of freedom and an area of .10 in the left tail of the chi-square distribution curve. What is the value of chi-square?
Genetic engineering can elicit negative responses : Biotechnology or genetic engineering can elicit negative responses. Is biotechnology a new or old branch of science?
Explain emerging diseases : Explain emerging diseases that have occurred over the last few years, and explain whether we will or will not continue to see emerging microbial diseases.
What is flotation cost adjustment-cost of retained earnings : What is the flotation cost adjustment that must be added to its cost of retained earnings?
Scientific method to determine viruses : How would you apply the scientific method to determine whether viruses are alive or not?
Outbreaks of bacterial infections : In the Microbial Pie case, there was prepared food, poor hand washing, or improperly stored food can cause outbreaks of bacterial infections.
What is the firm weighted average cost of capital : What is the firm’s weighted average cost of capital (WACC2) if it has to issue new common stock?
Determining the hormonal imbalance : Name the condition that might cause this hormonal imbalance. List two symptoms.

Reviews

Write a Review

Financial Management Questions & Answers

  What is the market price of risk for the companys revenue

The excess return of the market over the risk-free rate is 6% and the volatility of the market index is 18%. What is the market price of risk for the company's revenue?

  Uses the accrual method of accounting

Andrews Corporation uses the accrual method of accounting. When it sells the first unit of inventory for its product called Allure during the year, it also matches which of these expenses with that sale:

  Project will generate after tax cash flows

A machine costs $1,000 and has a 3 year life. The estimated salvage value at the end of three years is $100. The project will generate after tax cash flows of $600 per year. If the required rate of return is 10%, what is the NPV of the project?

  The decrease in principal in year 1 is

If a student borrows $20,000 to start a business as a 5 year, 10% loan, assume annual payments, the decrease in principal in year 1 is:-

  Estimate the cost of financing on preferred stock

Estimate the cost of financing on preferred stock. The firm has preferred stock outstanding that pays a constant dividend of $2.58 per year.

  Compute the expected future spot exchange rate

Suppose that the following conditions all hold: uncovered and covered interest rate parity, real interest rate parity, relative and absolute purchasing power parity. Compute the expected future spot exchange rate for one year from now (Brazilian real..

  Investments according to their expected returns

Use the approximate yield formula or a financial calculator to rank the following investments according to their expected returns. Buy a one-year, 5% note for $1,000 (assume that the note has a $1,000 par value and that it will be held to maturity).

  Risk and uncertainty explicitly considered

In which step of the seven-step systematic economic analysis technique (SEAT) are risk and uncertainty explicitly considered? 1)Specify the discount rate. 2)Perform supplementary analyses. 3)Compare the alternatives. 4)Identify the investment alterna..

  What is the firm after-tax cost of debt

If the firm's marginal tax rate is 40%, what is the firm's after-tax cost of debt?

  Calculate the payback period for project

Maxwell Software, Inc., has the following mutually exclusive projects. Year Project A Project B 0 –$16,000 –$19,000 1 10,000 11,000 2 6,500 7,500 3 2,500 6,500 a-1. Calculate the payback period for each project. What is the NPV for each project if th..

  Reinvests the monthly interest recieved into same account

Josh currently has a $1,850 saved in an account that dispurses 1% of the total value monthly in interest (12% APR). Josh invests $1,000 a month and reinvests the monthly interest recieved into this same account. How much will Josh have after 10 years..

  Firm is evaluating project with an initial cost

A firm is evaluating a project with an initial cost of $ 827,994 and annual cash inflows of $ 248,784 per year (first cash flow to be received exactly one year from today) for each of the next 5 years. If the cost of capital for this project is 13 %,..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd