Retained earnings versus new common stock Using the data for a firm shown in the

Question

Retained earnings versus new common stock Using the data for a firm shown in the tollowing table, cakculate the cost af retained earnings and the cost of new common stock using the constant-growh valuation model. (Click on the icon on the top-right cormer of the data table below in order to copy its contents into a spreadsheet.) Projected Current market Dividend dividend per Underpricing Flotation cost price per share growth rate share next year per share per share $2.70 $45.00 7% $1.50 $2.00 a. The cost of retained oamins is%. (Round to two doornal places.) b. The cost of rew common stock is[ %. (Rond to two doornal plac s)

Explanation / Answer

cost of retained earnings = 2.70/45 + 7%

cost of retained earnings = 13.00%

cost of new common share = 2.70/(45 - 1.5-2) + 7%

cost of new common share = 13.51%

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