Problem:
The par value of the stock is $2.00. The earnings per share have grown at a rate of 6 percent per year, and that growth is expected to continue for the foreseeable future. The last dividend for this common stock was $2.50 per share. The broker advises that the sell price for the new issue will be $25.00 and that the total flotation costs will be 5 percent.
Required:
Question: Calculate the cost of capital for the new common stock issue.
Note: Show supporting computations in good form.