Dickerson Corporation's common stock is currently selling for $38. Last year's dividend was $4.00 per share
Investors expect dividends to grow at an annual rate of 7 percent indefinitely.
Flotation costs of 4% will be
incurred when new stock is sold.
a. What is the cost of internal common equity?
b. What is the cost of new common equity?
a. D1 = $4.00 × 1.07 = $4.28
Cost of internal common equity = $4.28/$38 + .07 = 18.26%
b. Cost of new common equity = $4.28/($38 × .
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