Question

Cost of Common Equity with and without Flotation

The Evanec Company's next expected dividend, D₁, is $3.95; its growth rate is 5%; and its common stock now sells for $34. New stock (external equity) can be sold to net $28.90 per share.

What is Evanec's cost of retained earnings, r_s? Round your answer to two decimal places. Do not round your intermediate calculations.
r_s = ___________ %

What is Evanec's percentage flotation cost, F? Round your answer to two decimal places.
F = _______%

What is Evanec's cost of new common stock, r_e? Round your answer to two decimal places. Do not round your intermediate calculations.
r_e = _____________ %

Palencia Paints Corporation has a target capital structure of 45% debt and 55% common equity, with no preferred stock. Its before-tax cost of debt is 10% and its marginal tax rate is 40%. The current stock price is P₀ = $26.50. The last dividend was D₀ = $2.00, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC? Round your answers to two decimal places. Do not round your intermediate calculations.

r_s = _________%

WACC = ______________ %