A company’s Balance Sheet (in millions)
Assets Liabilities & Equity
Current $30
Net Fixed $70 Bonds ($1000 Par) 50
Total $100 Common Stock ($1 par) 50
Total $100
The company's bonds have 12 years to mature, pay 8% coupon rate semi-annually and comparable bonds' YTM is 10%.
The market price of common stock is $6.00 per share.
The company’s applicable tax rate is 35%.
The common stock dividend has grown at a steady rate from $0.58 in December 1990 to $1.2 in December 2000. The same growth rate is expected to continue for long time in the future.
The floatation cost for new common stocks is 10%.
Next year is 2001.
What is the cost of issuing new common stock?
Cost of new common stock?