Answer:
Cost of common stock = 11.33%
Explanation:
<em>The cost of common stock can be determined using the dividend valuation model.</em>
<em>According to the dividend valuation, the value of a stock is the present value of expected future dividends discounted at the required rate of return</em>.
The model can me modified to determined the cost of equity having flotation cost as follows:
Cost of equity = D(1+r )/P(1-f) + g
d- dividend, p- price of stock , f - flotation cost , - g- growth rate
Cost of common stock =
D- 2.00, g- 5%, Price net flotation cost = $33.15
Ke = 2.00 × (1.05)/33.15) + 0.05 × 100
= 11.33%
Cost of common stock = 11.33%
