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 percent on new equity issues, what will be the flotation-adjusted cost of equity?

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