Homework #6F (Cost of equity financing)
Question 1
Calculate the cost of new common equity financing of stock Q using Gordon Model
Round the answers to two decimal places in percentage form (Write the percentage sign
in the "units" box)
Growth Cost of
Last Year Selling Price Floatation
Rate of Common
Dividend of Stock Costs
Dividends Equity
Stock
$2.51 2% $39.54 $4.71 ?
Q
Your Answer:
r = [D0*(1+g) / (P0-F)] + g, where
D0 is the last year dividend
g is the constant growth rate
r is the cost of common equity
P0 is the current market price
F is Floatation costs
r =[$2.51*(1+0.02)/(39.54 – 4.71)] + 0.02 = 9.35%
Question 2
Last year the Black Water Inc. paid dividends $4.04. Company’s dividends are expected
to grow at an annual rate of 4% forever. The company’s common stock is currently
selling on the market for $84.62. The investments banker will charge flotation costs $2.49
per share. Calculate the cost of common equity financing using Gordon Model.
Round the answers to two decimal places in percentage form. (Write the percentage sign
in the "units" box).
Your Answer:
r = [D0*(1+g) / (P0-F)] + g, where
D0 is the last year dividend
g is the constant growth rate
r is the cost of common equity
P0 is the current market price
F is Floatation costs
r =[$4.04*(1+0.04)/(84.62 – 2.49)] + 0.04 = 9.12%
This study source was downloaded by 100000872281541 from CourseHero.com on 09-30-2023 07:37:47 GMT -05:00
https://www.coursehero.com/file/20945319/Homework-6F-Cost-of-equity-financing/
Question 1
Calculate the cost of new common equity financing of stock Q using Gordon Model
Round the answers to two decimal places in percentage form (Write the percentage sign
in the "units" box)
Growth Cost of
Last Year Selling Price Floatation
Rate of Common
Dividend of Stock Costs
Dividends Equity
Stock
$2.51 2% $39.54 $4.71 ?
Q
Your Answer:
r = [D0*(1+g) / (P0-F)] + g, where
D0 is the last year dividend
g is the constant growth rate
r is the cost of common equity
P0 is the current market price
F is Floatation costs
r =[$2.51*(1+0.02)/(39.54 – 4.71)] + 0.02 = 9.35%
Question 2
Last year the Black Water Inc. paid dividends $4.04. Company’s dividends are expected
to grow at an annual rate of 4% forever. The company’s common stock is currently
selling on the market for $84.62. The investments banker will charge flotation costs $2.49
per share. Calculate the cost of common equity financing using Gordon Model.
Round the answers to two decimal places in percentage form. (Write the percentage sign
in the "units" box).
Your Answer:
r = [D0*(1+g) / (P0-F)] + g, where
D0 is the last year dividend
g is the constant growth rate
r is the cost of common equity
P0 is the current market price
F is Floatation costs
r =[$4.04*(1+0.04)/(84.62 – 2.49)] + 0.04 = 9.12%
This study source was downloaded by 100000872281541 from CourseHero.com on 09-30-2023 07:37:47 GMT -05:00
https://www.coursehero.com/file/20945319/Homework-6F-Cost-of-equity-financing/
