Trahern Baking Co

question 59

Multiple Choice

Trahern Baking Co.common stock sells for $32.50 per share.It expects to earn $3.50 per share during the current year, its expected dividend payout ratio is 65%, and its expected constant dividend growth rate is 6.0%.New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred.What would be the cost of equity from new common stock?

• A) 12.70%
• B) 13.37%
• C) 14.04%
• D) 14.74%
• E) 15.48%