The Evanec Company's next expected dividend, D1, is $3.08; its growth rate is 4%; and its common stock now sells for $39.00. New stock (external equity) can be sold to net $31.20 per share. a. What is Evanec's cost of retained earnings, rs? Do not round intermediate calculations. Round your answer to two decimal places. rs = b. What is Evanec's percentage flotation cost, F? Round your answer to two decimal places. F = c. What is Evanec's cost of new common stock, re? Do not round intermediate calculations. Round your answer to two decimal places. re %

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Chapter1: Investments: Background And Issues
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**Text for Educational Website:**

**Title: Understanding Evanec Company's Financial Metrics**

**Introduction:**
This educational module explores the financial metrics related to Evanec Company's expected dividend, growth rate, cost of capital, and other related financial parameters. These concepts are crucial for understanding how companies assess their financial performance and make investment decisions.

**Scenario Details:**
Evanec Company's next expected dividend, denoted as \( D_1 \), is projected to be $3.08. The company's growth rate stands at 4%, and its common stock is currently trading at $39.00. Meanwhile, new stock (external equity) can be issued, netting $31.20 per share.

**Exercises:**

a. **Cost of Retained Earnings (\( r_s \)):**

- **Task:** Calculate Evanec's cost of retained earnings.
- **Instructions:** Do not round intermediate calculations and ensure your final answer is rounded to two decimal places.
- **Answer Box:** \( r_s = \_\_\_\_ \% \)

b. **Percentage Flotation Cost (F):**

- **Task:** Determine Evanec's percentage flotation cost.
- **Instructions:** Round your answer to two decimal places.
- **Answer Box:** \( F = \_\_\_\_ \% \)

c. **Cost of New Common Stock (\( r_e \)):**

- **Task:** Calculate Evanec's cost of new common stock.
- **Instructions:** Do not round intermediate calculations and round your final answer to two decimal places.
- **Answer Box:** \( r_e = \_\_\_\_ \% \)

**Conclusion:**
These calculations are fundamental in the field of finance, providing insights into how companies evaluate their cost of capital. By mastering these concepts, students and professionals can better analyze and interpret financial data to make informed investment decisions.
Transcribed Image Text:**Text for Educational Website:** **Title: Understanding Evanec Company's Financial Metrics** **Introduction:** This educational module explores the financial metrics related to Evanec Company's expected dividend, growth rate, cost of capital, and other related financial parameters. These concepts are crucial for understanding how companies assess their financial performance and make investment decisions. **Scenario Details:** Evanec Company's next expected dividend, denoted as \( D_1 \), is projected to be $3.08. The company's growth rate stands at 4%, and its common stock is currently trading at $39.00. Meanwhile, new stock (external equity) can be issued, netting $31.20 per share. **Exercises:** a. **Cost of Retained Earnings (\( r_s \)):** - **Task:** Calculate Evanec's cost of retained earnings. - **Instructions:** Do not round intermediate calculations and ensure your final answer is rounded to two decimal places. - **Answer Box:** \( r_s = \_\_\_\_ \% \) b. **Percentage Flotation Cost (F):** - **Task:** Determine Evanec's percentage flotation cost. - **Instructions:** Round your answer to two decimal places. - **Answer Box:** \( F = \_\_\_\_ \% \) c. **Cost of New Common Stock (\( r_e \)):** - **Task:** Calculate Evanec's cost of new common stock. - **Instructions:** Do not round intermediate calculations and round your final answer to two decimal places. - **Answer Box:** \( r_e = \_\_\_\_ \% \) **Conclusion:** These calculations are fundamental in the field of finance, providing insights into how companies evaluate their cost of capital. By mastering these concepts, students and professionals can better analyze and interpret financial data to make informed investment decisions.
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