Cost of common stock equity
Assume that today is January 1, 2013. Ross Textiles wishes to measure its cost of common stock equity. The firm's stock is currently selling for $55.69. The firm expects to pay a $1.67 dividend at the end of the year (2013). The growth rate of the dividends is 7.46%. After underpricing and flotation? costs, the firm expects to net $49.56 per share on a new issue.
a. Using the constant-growth valuation model, determine the cost of retained earnings, r Subscript s.
b. Using the constant-growth valuation model, determine the cost of new common stock, r Subscript n