question archive Question 3 For a company with a positive dividend growth rate, the cost of common equity raised by issuing new common stock (re) equals the cost of common equity from retaining earnings (rs), divided by one minus the percentage flotation cost required to sell the new stock, (1 – F)
Question 3 For a company with a positive dividend growth rate, the cost of common equity raised by issuing new common stock (re) equals the cost of common equity from retaining earnings (rs), divided by one minus the percentage flotation cost required to sell the new stock, (1 – F)
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Question 3 For a company with a positive dividend growth rate, the cost of common equity raised by issuing new common stock (re) equals the cost of common equity from retaining earnings (rs), divided by one minus the percentage flotation cost required to sell the new stock, (1 – F).
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FALSE
rs=D1/P0+g
re=D1/(P0*(1-f))+g=(rs-g)/(1-f)+g=rs/(1-f)+g*(-1/(1-f)+1)=rs/(1-f)+g*(-f/(1-f))
