Suppose That Tan Lines' Common Shares Sell for $20 Per

Multiple Choice

Suppose that Tan Lines' common shares sell for $20 per share, are expected to set their next annual dividend at $1.00 per share, and that all future dividends are expected to grow by 5 percent per year, indefinitely. If Tan Lines faces a flotation cost of 10% on new equity issues, what will be the flotation-adjusted cost of equity?

A) 5.06%
B) 5.50%
C) 10.00%
D) 10.56%