The Evanec Company\'s next expected divident, D is $3.18; itsgrowth rate is 6 pe

Question

The Evanec Company's next expected divident, D is $3.18; itsgrowth rate is 6 percent; and its common stock new sells for$36. New stock (external equity) can be sold to net $32.40per share. A. What is Evanec's cost for retained earnings, r? B. What is Evanec's percentage flotation cost, F? C. What is Evanec's cost of new common stock,re? The Evanec Company's next expected divident, D is $3.18; itsgrowth rate is 6 percent; and its common stock new sells for$36. New stock (external equity) can be sold to net $32.40per share. A. What is Evanec's cost for retained earnings, r? B. What is Evanec's percentage flotation cost, F? C. What is Evanec's cost of new common stock,re?

Explanation / Answer

Expected Dividend (D1) $3.18 Dividend Growth Rate (g) 6% Common Stock Selling Value (P0) $36 (A) Calculating Retained Earnings (r):      RetainedEarnings (r ) = (D1 / P0)+ g      RetainedEarnings (r ) = ($3.18 / $36) + 0.06      RetainedEarnings (r ) = 0.1483 (or) 14.83%      RetainedEarnings (r ) = 14.83% Hope it may help you Expected Dividend (D1) $3.18 Dividend Growth Rate (g) 6% Common Stock Selling Value (P0) $36 (A) Calculating Retained Earnings (r):      RetainedEarnings (r ) = (D1 / P0)+ g      RetainedEarnings (r ) = ($3.18 / $36) + 0.06      RetainedEarnings (r ) = 0.1483 (or) 14.83%      RetainedEarnings (r ) = 14.83%

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