What is the firm cost of external equity

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Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $45.00 per share. The firm's dividend for next year is expected to be $6.00 with an annual growth rate of 7.0% thereafter indefinitely. If the firm issues new stock, the flotation costs would equal 14.0% of the stock's market value. The firm's marginal tax rate is 40%. What is the firm's cost of external equity?

1) 21.21%

2) 20.33%

3) 21.27%

4) 23.59%

5) 22.50%

Reference no: EM131346365

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