The following financial information is available on Rawls Manufacturing Company:
Rawls can issue new common stock to net the company $44 per share. Determine the cost of external equity capital using the dividend capitalization model approach. (Compute answer to the nearest 0.1%).

Question

The following financial information is available on Rawls Manufacturing Company: 
Rawls can issue new common stock to net the company $44 per share. Determine the cost of external equity capital using the dividend capitalization model approach. (Compute answer to the nearest 0.1%).

Quizplus · Accepted Answer

Solution: k_e' = (D₁/P_net) + g = [$3.50(1.05)/$44] + 0.05 = 0.1335 or 13.4%

The Following Financial Information Is Available on Rawls Manufacturing Company