Compute the cost of retained earnings ke using this formula


Vance Communications wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D1) of $1.20 per share, and the current price of its common stock is $30 per share. The expected growth rate is 9%.

A) Compute the cost of retained earnings (Ke). Using this formula: Ke(Cost of common equity in the form of retained earnings).

= D1 / P0 + g

B) If a $2 floatation cost is involved, compute the cost of the new common stock (Kn). Use this formula:

= Ke= D1 / P0 + g
=Kn= D1 / Po - F + g

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Finance Basics: Compute the cost of retained earnings ke using this formula
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