CFA CFA Level 1 Question of the Week – Corporate Finance

Question of the Week – Corporate Finance

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    • AdaptPrep
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      Systelgg is looking to enter into a new product line, and is looking for financing. Systelgg’s stock is selling for $50, and expects to pay $8 dividends next year. Furthermore, Systelgg’s has a sustainable dividend growth rate of 5% and is looking at paying $4/share in flotation costs.
      The cost of equity for Systelgg is closest to:

      • 20%
      • 21%
      • 22%
    • AdaptPrep
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      The cost of equity with flotation costs can be calculated
      as:

      r_e = D1 / (P0 – F) + g = 8 / (50 – 4) + 0.05 = 22.39%

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