Weaver Chocolate Co. expects to earn $3.60 per share during the current year, it

Question

Weaver Chocolate Co. expects to earn $3.60 per share during the current year, its

expected dividend payout ratio is 60%, its expected constant dividend growth rate (g) is 6.5%,

and its common stock currently sells for $32.50 per share. New stock can be sold to the public at

the current price, but a flotation cost of 8% would be incurred (F = 0.08). What would be the

cost of retained earnings common equity (rs) for Weaver Chocolate Co.? What would be the cost of equity from new common stock (re)?

Explanation / Answer

Expected EPS1 $3.60
Payout ratio 69%
Expected dividend, D1 = EPS

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