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What is the cost of external equity

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Neptune Corporation has a capital structure of 40% debt and 60% common equity. This capital structure is expected not to change. The firm's tax rate is 34%. The firm can issue the following securities to finance capital investments:

Debt: Capital can be raised through bank loans at a pretax cost of 8.3%. Also, bonds can be issued at a pretax cost of 8.7%.

Common Stock: Retained earnings will be available for investment. In addition, new common stock can be issued at the market price of $80. Flotation costs will be $3 per share. The recent common stock dividend was $4.70. Dividends are expected to grow at 5% in the future.

What is the cost of external equity?

Reference no: EM133000248

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