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What is the cost of equity of the project

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Problem 1: Suppose that a company undertakes a project which requires an initial cash outlay of €50,000 and is expected to produce cash flows of €22,000 for 3 years. Assume that the company finances the project with 100% equity, has a current stock price of €15, intends to pay dividends of €1.50 next year, and the expected sustainable growth rate is 6%. The company's marginal tax rate is 35%. If flotation costs are 5% of the new equity capital raised, what is the cost of equity of the project using the two methods for accounting for flotation costs?

Reference no: EM132877308

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