Question

Firm X just paid​ $5/share dividend. We expect the dividend to grow annually at a constant rate​ 3%. The current stock price is​ $100. If firm X issues new​ equity, the new shares would sell at​ $98/share and the firm also needs to pay investment banks​ $3/share flotation cost. What is the cost of retained​ earnings? g

Answer 1

Cost of Earnings = (Dividends per share for next year ÷ Current market value of the stock) + Dividend growth rate

= 8.42 %

Step-by-step explanation:

See Attachment