Firm A’s stock is currently selling at $25 per share

Finance Dec 21, 2020

Firm A’s stock is currently selling at $25 per share. The stock just paid a dividend (D₀) of $1, and the dividend is expected to grow at a constant rate of 7%. If the company decides to sell new common stock, the flotation costs associated with the new stock issuance is 15% of the proceeds. Given the above information, which of the following is the cost of issuing new common stock?

a. 14.84%

b. 11.97%

c. 12.63%

d. 12.04%

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