Question

A stock is trading for $28.04 and just paid a dividend of $0.7, which is expected to grow at 2% per year. If Goldman Sachs charges 5% of the price as a flotation cost, the net proceeds from the stock sale, after deducting flotation costs, can be calculated to determine the actual funds available for investment or distribution to shareholders.

Answer 1

The net proceeds from the stock sale after deducting flotation costs can be calculated by subtracting the flotation costs from the stock price.

The net proceeds from the stock sale can be calculated by deducting the flotation costs from the stock price. Flotation costs are charged by investment banks, in this case, Goldman Sachs, when they help a company sell its stock to the public. The flotation costs are typically a percentage of the stock price, and in this case, it is 5% of $28.04, which is $1.402. So, the net proceeds from the stock sale would be $28.04 - $1.402 = $26.638.