The cost of equity raised by selling new common stock is 11.33%.
Using this formula
re = D1/(P0 × (1 - F)) + g
Where:
re=Cost of equity=?
Dividend(D1)=$1.75
Stock price(P0)=$42.50
Growth rate(g)=7.00%
Floatation cost (F)=5.00%
Let plug in the formula
re =1.75/(42.50 × (1 - 0.05)) + 0.07
re=1.75/(42.50×0.95)+0.07
re=(1.75/40.375)+0.07
re=0.04334365+0.07
re=0.1133×100
re=11.33%
Inconclusion the cost of equity raised by selling new common stock is 11.33%.
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