What would be the cost of new common stock equity for tangshan mining if the firm just paid a dividend of $4.25, the stock price is $55.00, dividends are expected to grow at 8.5 percent indefinitely, and flotation costs are $6.25 per share?
a)16.88%
b) 9.46%
c) 17.96%
d) none of the above

The flotation costs are Option C) 17.96%

Explanation:

Consider the following equation

Cost of common stock = (D1/Current price-flotation costs)+Growth rate

=(4.25*1.085)/(55-6.25)+0.085

=(4.61125/48.75)+0.085

which is equal to

=Flotations costs asre 17.96%(Approx).

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