The Evanec Company\'s next expected dividend, D1, is $2.64; its growth rate is 6

Question

The Evanec Company's next expected dividend, D1, is $2.64; its growth rate is 6%; and its common stock now sells for $40. New stock (external equity) can be sold to net $36.00 per share.

What is Evanec's cost of retained earnings, rs? Round your answer to two decimal places. Do not round your intermediate calculations.
rs =  %

What is Evanec's percentage flotation cost, F? Round your answer to two decimal places.
F =  %

What is Evanec's cost of new common stock, re? Round your answer to two decimal places. Do not round your intermediate calculations.
re =  %

Explanation / Answer

1. cost of retained earnings=(Dividend for next period/Current price)+Growth rate

=(2.64/40)+0.06

=12.6%

2.% floatation cost=(40-36)/40=10%

3.Cost of new common stock=(Dividend for next period/Current price)+Growth rate

=(2.64/36)+0.06

=13.33%(Approx)

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