Byron Corporation’s target capital structure consists of 40% debt and 60% common equity. Assume that the firm has no retained earnings. The company’s the last dividend (Do) was $2.00, which is expected to grow at a constant rate of 5%, and the current stock price is $21.88. Byron can raise all the debt financing it needs at 14%. If Byron issues new common stock, a 20% flotation cost will be incurred. The firm’s tax rate is 40%
10. What is the component cost of the equity raised by selling new common stock ?