Gulf Electric Company (GEC) uses only debt and equity in its capital structure. It can borrow unlimited amounts at an interest rate of 10% so long as it finances at its target capital structure, which calls for 55% debt and 45% common equity. Its last dividend was $2.20;its expected constant growth rate is 6%;its stock sells on the NYSE at a price of $35;and new stock would net the company $30 per share after flotation costs. GEC%u2019s tax rate is 40%, and it expects to have $100 million of retained earnings this year. What is GEC%u2019s cost of equity from newly issued stock? Answer 10.00% 13.33% 11.44% 12.29% 12.66% 13.77%
Cost of Equity
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