25 Jul WHAT IS THE FIRMS COST OF RETAINED EARNINGS?
Ross and Sons Inc. has a target capital structure that cells for 40% debt 10% preferred stock and Show more Ross and Sons Inc. has a target capital structure that cells for 40% debt 10% preferred stock and 50% common equity. The firms current after-tax cost of debt is 6% and it can sell as much debt as it wiches at this rate. The firms common stock currently sells for $40 per share but the firm will net only $34 per share from the sale of new common stock due to flotation costs. The firm recently paid a dividend of $2 per share on its common stock and investors expect the dividend to grow indefinitely at a constant rate of 10% per year. What is the firms cost of retained earnings? What is the firms cost of newly issued common stock? Show all work. Show less
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