A firm is selling new common stock at $80 per share. The recent paid dividend wa

Question

A firm is selling new common stock at $80 per share. The recent paid dividend was $2.70 and expected to grow at a constant annual rate of 9%. The flotation cost is $5.00. What is the cost of the firm's retained earnings?
3.77 % 12.68% 12.38% 12.92% 12.60% A firm is selling new common stock at $80 per share. The recent paid dividend was $2.70 and expected to grow at a constant annual rate of 9%. The flotation cost is $5.00. What is the cost of the firm's retained earnings?
3.77 % 12.68% 12.38% 12.92% 12.60%
3.77 % 12.68% 12.38% 12.92% 12.60%

Explanation / Answer

12.92%

Working:

Cost of firm's retained earning = (D0*(1+g)/P0)+g Where, = (2.70*(1+0.09)/75)+0.09 D0 Last dividend $       2.70 = 12.92% g Growth rate 9% P0 Current net proceeds 80-5 = $          75

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