Problem:
Compute the cost of the following:
A new common stock issue that paid a $1.05 dividend last year. The par value of the stock is $2, and the earnings per share have grown at a rate of 4 percent per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant dividend-earnings ratio of 40 percent. The price of this stock is now $30, but 9 percent flotation costs are anticipated.