(i) Describe and interpret the assumptions related to the problem.
(ii) Apply the appropriate mathematical model to solve the problem.
(iii) Calculate the correct solution to the problem.
1. Haroldson Inc. common stock is selling for $22 per share. The last dividend was $1.20, and dividends are expected to grow at a 6% annual rate. Flotation costs on new stock sales are 5% of the selling price. What is the cost of Haroldson Inc.'s new common stock?
2. Kokapeli, Inc. has a target capital structure of 40% debt and 60% common equity, and has a 40% marginal tax rate. If the firm's yield to maturity on bonds is 8.5% and investors require a 12% return on the firm's common stock, what is the firm's WACC?
3. Jiffy Co. expects to pay a dividend of $3.50 per share in one year. The current price of Jiffy common stock is $56 per share. Flotation costs are $4.00 per share when Jiffy issues new stock. What is the cost of internal common equity if the long-term growth in dividends is projected to be 8.5 percent indefinitely?