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Linda_us, Finance, Accounts & Homework Tutor
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(Cost of equity) Please help me immediately!!!

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The common stock for the Bestsold Corporation sells for $58. If a new issue is sold, the floatation costs are estimated to be 8 percent. The company pays 50 percent of its earnings in dividends, and a $4 dividend was recently paid. Earnings per share 5 years ago were $5. Earnings are expected to continue to grow at the same annual rate in the future as during the past 5 years. The firm's marginal tax rate is 34 percent. Calculate the cost of (a) internal common equity and (b) external common equity.
Hi RichyRich

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Customer: replied 5 years ago.

I would appreciate it if you could please help me. I have joined the unlimited access for asking questions.

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Customer: replied 5 years ago.
could you please post it in something that I don't have to go to a link to get? Such as where you typed your message to me please.

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Customer: replied 5 years ago.
what was the calculation for the growth rate?

I used the RATE function in excel =RATE(NPER,PMT,PV,-FV)

=RATE(5,0,2.5,-4) = 9.86%

Five year ago dividend would be 5 x 50% = 2.5 , current dividend is 4 so putting these value in rate function we can get growth rate of 9.86%

We can also solve is by following

FV = PV*(1+r)^NPER

4 = 2.5*(1+r)^5

Solving for r = .0986 or 9.86%



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