What is the company cost of common equity

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Reference no: EM132000459

1. Jarett & Sons's common stock currently trades at $32.00 a share. It is expected to pay an annual dividend of $1.25 a share at the end of the year (D1 = $1.25), and the constant growth rate is 4% a year.

What is the company's cost of common equity if all of its equity comes from retained earnings? Round your answer to two decimal places. Do not round your intermediate calculations.

If the company issued new stock, it would incur a 18% flotation cost. What would be the cost of equity from new stock? Round your answer to two decimal places. Do not round your intermediate calculations.

2. Pearson Motors has a target capital structure of 40% debt and 60% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 12%, and its tax rate is 40%. Pearson's CFO estimates that the company's WACC is 14.40%. What is Pearson's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.

Reference no: EM132000459

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