Question

Question 21 1 pts Mickey's, Inc.'s stock is currently selling at $64 a share, and expected to pay a year-end $6.40 dividend. Dividends are expected to grow at 2.5% a year, and this growth rate is expected to continue indefinitely. If flotation costs are 5%, what is the firm's cost of retained earnings and new common stock? 12.5%; 13.03% 12.75%; 14.55% 13.03%: 12.5% 10%; 15% 10%; 10% MacBook Air

Answer 1

Cost of retained earnings (1) D1+PO+g Here, Net stock price (PO) Expected dividend (D1) Growth rate (g) 64 6.40 2.5% Cost of retained earnings (r) 12.5% 6.4:64+2.5%

Cost of new common stock D1=[POx(1-F)]+g Here, 64.00 6.40 Stock price (PO) Expected dividend (D1) Flotation cost (F) Growth rate (g) 5% 2.5% Cost of new common stock 13.03% 6.4/(64x(1-5%))+2.5%

Hence the correct option is 12.5%,13.03%

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