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Rochak · Accepted Answer

1. Dividend = Issue Price * Dividend %
= $70 * 8%
= $5.6
Cost of Preferred Equity = Dividend/(Current Price * (1-Flotation Cost))
= $5.6/($85 * (1-4%))
= 6.86%
2. Current Stock Price = Dividend/(Cost of Common equity – Constant Growth rate)
$34 = $3.00/(Cost of Common Equity – 5%)
Solving for Cost of Common Equity, we get
Cost of Common Equity = 13.82%
3.

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