A firms stock is selling for $78. The next annual

A firms stock is selling for $78. The next annual dividend is expected to be $2.70. The growth rate is 9%. The flotation cost is $5.00. What is the cost of retained earnings?

A - 13.09%

B - 12.46%

C - 12.7%

D - None of these

1 Answers

  • Dion Block
    97 days ago

    P0 = $78

    g = 9%

    D1 = $2.70

    what is Ks?

    P0 =D1/(Ks-g)

    So Ks = g + D1/P0 = 9% + 2.70/78 = 12.46%

    Floataton cost is not relevant here as it is used only for Issue of stock.

    So correct option is B : 12.46%

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Questions