how is cost of new equity different from cost of equity?
flotation costs costs to issue the new stock
Flotation costs for one… underwriting fees, etc.
for wacc purposes (forward looking), they’ll be the same. some might get confused and try to do some backward-looking historical cost calculation.
why would forward looking be the same?
the only reason to ask about wacc is to make a decision: do I add a dollar of debt, do I subtract a dollar of equity, etc. So it deals with marginal movements.
well once you think about years to come then the new equity becomes ‘old equity’ so it’s normal to be the same but the first year is the one really relates to new equity and all the costs associated have an impact