2. martin corporation's common stock sells for $55 per share. the current dividend is $2.75 per...
2. martin corporation's common stock sells for $55 per share. the current dividend is $2.75 per share; dividends are expected to grow at 5.00 percent per year indefinitely. the floatation cost of new common stock is 20.00 percent. what is the firm's cost retained earnings?
Homework Answers
COST OF RETAINED EARNINGS : Do not include flotation costs
Cost of retained earnings = re = D1/P0 + g
D0 = 2.25, g = 5%, P0 = 55
D1 = D0*(1+g) = 2.75 *(1+0.05) = 2.8875
re = 2.8875/55 + 0.05 = 0.1025 = 10.25%
Answer : 10.25% (Thumbs up please)
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