Question

Murray Motor Company wants you to calculate its cost of common stock During the next 12 months, the company expects to pay vidends (D) of $10 per share, and the current price of its common stock is $38 per share. Th expected growth is 10 percent a. Compute the cost of r ed aming ) Do not round c o ns put your answer as a perrounded to 2 decimal places) b o nos moved compute the cost of new common RK Do not round intermediate your answer as a percent rounded to 2 decimal places)

Answer 1

a. Cost of retained earnings =( Div_{​​​​1​​} / P_{​​​​​0}​​​​​ ) + g

= (1.90/38) + 0.10

= 0.15

= 15%

b.

P_{​​​​​​0​​​​​} = 38$-Flotation cost

= 38$-2$

= 36$

cost of new common stock = ( Div_{​​​​1​​} / P_{​​​​​0}​​​​​ ) + g

= (1.90/36) + 0.10

= 0.0528 + 0.10

= 0.1528

= 15.28%

I hope my efforts will be fruitful to you...?