Quantitative Problem: Barton Industries expects next year’s annual dividend, D1, to be $2.20 and it expects…

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Quantitative Problem: Barton Industries expects next year’s annual dividend, D1, to be $2.20 and it expects…

Quantitative Problem: Barton Industries expects next year’s annual dividend, D1, to be $2.20 and it expects dividends to grow at a constant rate gL = 4.5%. The firm’s current common stock price, P0, is $20.30. If it needs to issue new common stock, the firm will encounter a 5.4% 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.
% (3.96 is incorrect)

What is the cost of new common equity? Round your answer to 2 decimal places. Do not round intermediate calculations.
12 % (correct)

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