Why do you deduct or subtract 1 to flotation cost?Example:Given; Annual dividend (D) = $4.75Flotation cost (F) = 0.05 or 5%Number of shares issued (N) = 10,000Stock price (P0) = $50 Formula;Total value able to receive = N * P0 * (1 - F) Total value able to receive = 10,000 * $50 * (1 - 0.05)Total value able to receive = $500,000 * 0.95Total value able to receive = $475,000

Flotation cost: Flotation cost is the cost incurred for issuing new shares. Examples of flotation…

Answered: Why do you deduct or subtract 1 to…

Why do you deduct or subtract 1 to flotation cost? Example: Given; Annual dividend (D) = $4.75 Flotation cost (F) = 0.05 or 5% Number of shares issued (N) = 10,000 Stock price (P0) = $50

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 13P: The Cost of Equity and Flotation Costs Messman Manufacturing will issue common stock to the public...

See similar textbooks

Related questions

Q: Related to Checkpoint 5.4) (Present-value comparison) You are offered $100.000 today or $300,000 in…

A: Information Provided: Future value = $300,000 Years = 13 Interest rate = 11%

Q: 2. The Anderson Machine Company's main product is a GPS tracking device that is only one square inch…

A: In the given case The product is relatively new but not a entire new innovation, there other other…

Q: what are some risks of investing in investing in SAAS startups

A: SaaS stands for Software as a service. Saas delivers application over the internet i.e., user do not…

Q: Calculate the annual interest (in $) and current yield (as a %) of the bond. (Round your percentage…

A: The coupon rate is the interest rate used to determine the interest payment on a bond. The coupon…

Q: Problem 4-2 Calculating Future Values a. Compute the future value of $2,000 compounded annually for…

A: Future value is the compounded value of initial value. It is compounded using appropriate interest…

Q: You plan to buy a house in three years and would like to put $100,000 down at the time of buying.…

A: Concept. 1. Future value ( if no annuity payments are involved). FV = P (1+r)n Where FV= Future…

Q: Sarah Wiggum would like to make a single investment and have $1.7 million at the time of her…

A: Present Value refers to the discounted value of a single cash flow or multiple cash flows today…

Q: What is the Delta of an at-the-money binary option with a payoff 0 at < $100, and payoff 1 at ≥…

A: A binary option is a financial contract in which the parties involved are allocated one of two…

Q: What is MOST TRUE of DEFAULT RISK on a mortgage loan? Group of answer choices It is always lower…

A: Mortgage loans are secured loan i.e., borrower raise funds for various purposes by promising…

Q: You are looking at two investment options, A and B. Investment A is a 15-year annuity that needs an…

A: Here, To Find: Part A. Future value of Investment A and the present value of investment B =? Part…

Q: I’m wanting to buy a call option. I have the prices of 13 calls and the strike prices & the…

A: Call options and the factors that affect them: Call options give their holders the right but, not…

Q: You are given the following information on three funds. The risk free rate is 6 %. Calculate the…

A: With the information given we can calculate 2 differential return measure:1. Sharpe Ratio2.…

Q: ) Since your first birthday, your grandparents have been depositing $1200 into a savings account on…

A: The future value of deposit includes the amount being deposited and amount of interest being…

Q: 1) Consider the following timeline: Date Cash flow HI $100 $200 $300 If the current market rate of…

A: Cash flow for year 1 = $100 Cash flow for year 2 = $200 Cash flow for year 3 = $300 Interest rate =…

Q: Locate the Treasury bond in Figure 8.4 maturing in August 2042. Assume a par value of $10,000. Is…

A: Bid-Ask Spread The bid-ask spread is the variation between the highest price a buyer is willing to…

Q: Your firm is contemplating the purchase of a new $605,000 computer-based order entry system. The…

A: The Internal rate of return refers to the analysis that is used for estimation of the level of…

Q: 31. Christie's savings and investment assets include the following: RRSP: $100,000 in bond funds…

A: While doing investment there is need that sufficient allocations is made for all and so that return…

Q: I would prefer a handwritten solution rather than an excel calculation

Q: A 16-pound bag of Kitty Kibbles is $24.00. An 8- pound bag of Feline Flavor is $11.20. Which…

A: The price per unit: The prices of products are quoted per bag in the market. Each bag is priced…

Q: The first product Suzie represents is a short term loan. Here, customers can borrow small amounts of…

A: Simple Interest: When the interest is charged or paid on a fixed principal over a given period is…

Q: Gordon has a goal of purchasing a new second hand car valued at approximately $14,000 financed from…

A: Solution:- When money is invested somewhere, the investor earns two types of returns- Periodic…

Q: Jolie Foster Care Homes Incorporated shows the following data: Total Assets $ 2,330,000 2,050,000…

A: Answer - Return of Net Income to Total Assets - Return on assets is a financial ratio that depicts…

Q: -) Consider the following timeline: Date 0 -$150 Cash flow $40 2 $80 f the current market rate of…

A: Given: The current market rate of the interest rate is 13% then calculate the cash flow rate of year…

Q: Special Pain au Levain 2 for $5 Regularly $3.99 Over 30% off. (a) Is the claim true? (b) How much…

A: This is a case of a special discount. In many cases and instances companies, restaurants, and other…

Q: (Related to Checkpoint 4.2) (Capital structure analysis) The liabilities and owners' equity for…

A: Present Assets financed by debt percentage is 1294000÷7389000 * 100 = 17.51%

Q: You have been managing a $5 million portfolio that has a beta of 1.05 and a required rate of return…

A: Data given: For $5 million portfolio: Beta = 1.05 Required rate of return = 6.675% Current risk-free…

Q: What is the future value at the end of year 20 of a series of 16 deposits? The first deposit curs at…

A: Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only one…

Q: Dexter, Incorporated, had a cost of goods sold of $44,521. At the end of the year, the accounts…

A: Days of Payables Outstanding refers to average number of days for the company it takes to pay off…

Q: You are planning to save enough to retire in 40 years. To do this, you will invest $1,000 at the end…

A: Future value of cash flow includes the amount being deposited over the period of time and amount of…

Q: if you spend half your life savings $5000 in 1 week, how long will it take to reduce your savings to…

A: Savings are done so that one should spend these when there is need of that. Savings are very…

Q: Free Inc. has after tax operating income of $100 million. It is depreciation is $20million. The…

A: After ta Operating income of $100million Depriciation is $20million Capital expenditure is…

Q: The maintenance for a bus, whose life is 10 years, is $1500 per year starting the fourth year,…

A: Your Solution:

Q: Kirk Van Houten, who has been married for 21 years, would like to buy his wife an expensive diamond…

A: The annual rate of return refers to the compounded rate of return earned on the principal amount…

Q: Solve for the missing item in the following. Note: Do not round intermediate calculations. Round…

A: Data given: Interest rate = 5.25% =0.0525 Time =4 3/4 years = 4.75 years Simple interest = $ 390…

Q: What are the annual payments for years 1 to 30? What is remaining balance at the end of each year?…

A: Information Provided: Loan amount = $120,000 Year of loan = 30 years Interest rate = 10%

Q: Munich to Moscow. On your post-graduation celebratory trip you decide to travel from Munich,…

A: Given, Spot rate on the dollar/euro exchange rate is $1.3237/Euro Spot rate on the ruble/dollar…

Q: Domenic is 20 years old and wishes to secure his future by saving $300 per week into an investment…

A: Time Period 30 Periodic contributes(Weekly) $ 300.00…

Q: Dowling Sportswear is considering building a new factory to produce aluminum baseball bats. This…

A: Initial cash outlay $ 55,00,000.00 Net cash inflows $ 9,00,000.00 Time Period (Years) 9…

Q: You have located a warehouse property to purchase at a price of $320,000. You plan to make a 20%…

A: Puirchase price of warehouse is $320,000 Down payment is of $64,000 Term of loan is 10 years…

Q: A rich donor gives a hospital $1,040,000 one year from today. Each year after that, the…

A: First donation (F) = $1,040,000 Growth rate (g) = 0.06 Interest rate (r) = 0.11 Period (n) = 10…

Q: Esfandairi Enterprises is considering a new 3-year expansion project that requires an initial fixed…

A: The NPV analysis is conducted to determine the profitability of a project. It uses the concept of…

Q: What the benefits of the DuPont analysis to deconstruct a firms ROE?

A: Duopoint analysis With the help of the DuPont Analysis, researchers can identify a company's areas…

Q: Question 1: Part A 1 of 2 The Ghirardelli Chocolate Co. rents several small retail units from…

A: The present value of an annuity: The value of a sum of money receivable or payable at fixed times…

Q: (a) The bid and ask prices of physical platinum are currently trading at $1,050 / $1,060 per troy…

A: Given: Current price = $1,050/$1,060 Storage cost = $10 per toy Interest rate = 4.6% Periods = 12

Q: 3. ABC Corp.’s equity multiplier is 1.25. What is its debt ratio? 4.Easy Corp.’s return on…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: The management has decided to go for upfront payments for 1-year instances. AWS has tie-up with…

A: Loan Amount = $2,102 Monthly Payment = $187.61 Time Period = 1 Year

Q: Your have $15,000 that you want to invest. You expect your investment to yield 5% annual growth…

A: Future value = Present value×[1+Periodic interest rate]^n Where, N = Number of periods (years) = 15…

Q: find the expected return for investing in buildings in a metro area where the following three…

A: Expected return on investment = Net income/ Initial cost (multiply with 100 to get in percentage)…

Q: 11-11. Tokyo Steel’s common stock currently is selling for $56 per share. The most recent dividend…

A: The dividend is the distribution of earnings to the shareholders as a share of profit. The retained…

Q: Monster Limos plans to issue new bonds that have the same yield as its existing bonds, which have a…

A: Given: Particulars Amount Face value (FV) $1,000 Present value(PV) 886 Coupon rate 4%…

Question

Why do you deduct or subtract 1 to flotation cost?

Example:

Given;

Annual dividend (D) = $4.75
Flotation cost (F) = 0.05 or 5%
Number of shares issued (N) = 10,000
Stock price (P0) = $50

Formula;

Total value able to receive = N * P0 * (1 - F)

Total value able to receive = 10,000 * $50 * (1 - 0.05)

Total value able to receive = $500,000 * 0.95

Total value able to receive = $475,000

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

What is the formula for Price to Book Value ( MV/BV) ratio ? If Current Price = 126, Total Equity = 20.000.000E , and number of shares =2.000.000 %3D compute the P/ BV and interpret it.
Estimate its cost of common equity, Maxell and Associcates recently hired you. Obtain the following data, D0=$0.90, P0= $27.50, gl=7% constant. Based on the dividend grwoth model, What is the cost of common for reinvested earnings? (10.50%,9.29%,10.08%,9.68%,10.92%)
You obtained the following data for Game Corporation: D1= $1.25; P0= $27.50; g = 5.00% (constant); and flotation costs = 6.00%. What is the cost of common equity raised by selling new common stock? What is the cost of common from reinvested earnings? Show work in excel
Write the formula for P-E ratio. P = 16 Net Profits =1.000.000 ₺ and Number of shares =1.000.000. Interpret the result.
Estimating EPS from Statement of Equity Below is an excerpt from the Consolidated Statement of Equity for Conglomerate Y for the fis year ended Year 10 (millions). Fiscal Year Ended December 27, Year 10 Preferred Stock Conglomerate Y and Subsidiaries Consolidated Statement of Equityt Repurchased Preferred Stock Balance, beginning of year Redemptions Balance, end of year Common Stock Balance, beginning of year Repurchased common stock Balance, end of year Capital in Excess of Par Value Balance, beginning of year Stock-based compensation expense Stock option exercises, RSUS, PSUs and Yunits converted Withholding tax on RSUS and PSUs converted Other Balance, end of year Retained Earnings Balance, beginning of year Net income attributable to Conglomerate Y Cash dividends declared-common Cash dividends declared-preferred Cash dividends declared-RSUS and PSUs Balance, end of year Shares Amount 0.8 $41 (0.6) (0.1) (0.7) 1,529 (66) 1,463 (171) (10) $(181) $25 $25 $4,095 297 (200) (91) 14…
A firm has common stock with D1 = $3.00; P0 = $30; g = 5%; andF = 4%. If the firm must issue new stock, what is its cost of externalequity, re? (15.42%)
1. If the required rate of return is 5 percent and the stock pays a fixed S5 dividend, its value is • A. $100 • B. $75 • C. S10 • D. $50 2.The P/E ratio is determined by • A. The required rate of return. • B. The expected dividend payout ratio. • C. The expected growth rate of dividends. • D. Choices a and b • E. All of the above
A company hired you as a consultant to help estimate its cost of capital. You have obtained the following data: D0 = $2.45; P0 = $28.96; and g = 4.06% (constant). What is the cost of equity from retained earnings? Do not round your intermediate calculations. Express your answer as a percent rounded to two decimal places. (For example, 4.567% should be entered as 4.57)
What is the price of a share today if dividend today (D0) is $5, discount rate (R) 10%, and dividend growth rate (g) 3%. (Explain and show all calculations.)
Please use excel formulas Current dividend Years until dividend ceases Required return (Use cells A6 to B8 from the given information to complete this question.) Output area: Share price $9.45 13 10.70% ?
Answer the following as indicated. (Format: problem, then, solution) 6. Calculate the dividends paid to a stockholder who has 120 shares of stocks that is paying P30 per share.
D O Assume that Kish Inc. hired you as a consultant to help estimate its cost of capital. You have obtained the following data: Do = $0.90; Po = $47-50; and g = 7.00% (constant). Based on the DCF approach, what is the cost of equity from retained earnings? Do not round your intermediate calculations. a. 2.03% b. 8.77% O c. 9.03% O d. 8.89% O e. 2.17% Q Search B G 8 40 E hp X Dropbox promotion fo 25 alt a W ctri *** prisc X delete backspace pause home