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In the spring of 2015, the Brille Corporation was involved in issuing new common stock at a market price of $35. Dividends last year were $1.50 and are expected to grow at an annual rate of 5 percent forever. Flotation costs will be 6 percent of market price. What is Brille’s cost of equity for the new issue?

Respuesta :

TomShelby

Answer:

Ke 0.09787234 = 9.787234%

Explanation:

[tex]$Cost of Equity =\frac{D_1}{P(1-f)} +g[/tex]

D1 $1.575  (we need to calculate this year dividends so we multiply previous                  year by the growth rate) 1.50 * ( 1+ 0.05) = 1.575

P $35

f 0.06

g 0.05

[tex]$Cost of Equity =\frac{1.575}{35(1-0.06)} +0.05[/tex]

Ke 0.09787234