Question

the evanec company's next expected dividend, d1, is $3.99; its growth rate is 5%; and its common stock now sells for $31.00. new stock (external equity) can be sold to net $24.80 per share. what is evanec's cost of retained earnings, rs? do not round intermediate calculations. round your answer to two decimal places.

Answer 1

The cost of retained earnings of the Evanec Company for the conditions given above will be 17.86 percent.

The cost of retained earnings can be referred to or identified as the costs that can be ascertained using the amount of dividend distributed among the shareholders. These dividends are always paid out of the internal profits generated by a company over its revenues.

The calculation for the same will be done as below,

Cost of Retained Earnings = Dividend/Share Price + Growth Rate

Cost of Retained Earnings = 3.99/31 + 0.05

Cost of Retained Earnings = 0.1786

Therefore, the cost of Retained Earnings will be 17.86 percent.

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