What is the formula for external equity?

The cost of internal equity (using the dividend discount model) is

ke = (D1/P0) + g

The cost of external What_is_the_formula_for_external_equityis just like the formula for internal equity (retained earnings) except that you base it on the net proceeds after flotation costs rather than the market value of the stock.

ke' = (D1/Pnet) + g

Because Pnet will be somewhat lower than P0 (because of the flotation costs), ke' will be higher than ke.