Question

The Evanec Company's next expected dividend, D1, is $2.14; its growth rate is 7 percent; and its common stock now sells for $42. New stock (external equity) can be sold to net $39.60 per share. What is Evanec's cost of retained earnings, rs

Answer 1

Answer:

12.74%

Explanation:

Given that

Expected dividend = 2.41

Growth rate = 7% = 0.07

Common stock price = 42

Recall that

Cost of retained earning = (Dividend/common stock price) + growth rate

Thus,

= 2.41/42 + 0.07

= 0.05738 + 0.07

= 0.12738

= 0.1274

= 12.74%