trahern baking co. common stock sells for $32.50 per share. it expects to earn $3.50 per share during the next year, its expected dividend payout ratio is 65%, and its expected constant dividend growth rate is 6.0%. new stock can be sold to the public at the current price, but a flotation cost of 15% would be incurred. what would be the cost of equity from new common stock?

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27-10-2022
Business

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trahern baking co. common stock sells for $32.50 per share. it expects to earn $3.50 per share during the next year, its expected dividend payout ratio is 65%, and its expected constant dividend growth rate is 6.0%. new stock can be sold to the public at the current price, but a flotation cost of 15% would be incurred. what would be the cost of equity from new common stock?

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JitSen257 JitSen257 · Answer 1 · 2022-11-04T08:08:35-04:00

The Capital Asset Pricing Model is utilized in the process of determining the common stock cost of equity. Taking into account the additional risk taken, it calculates the anticipated total return for the investor.

Why does CAPM determine equity cost?

CAPM is a tried-and-true method for estimating the cost of shareholder equity for accountants and analysts. The model can be used in a variety of accounting and financial contexts because it quantifies the relationship between systematic risk and expected asset return.

One common approach is to divide the total amount of debt by the sum of your company's annual interest costs on each debt.

Learn more about Capital Asset here:

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