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23 January, 04:39

The Evanec Company's next expected dividend, D1, is $2.14; its growth rate is 7 percent; and its common stock now sells for $42. New stock (external equity) can be sold to net $39.60 per share. What is Evanec's cost of retained earnings, rs

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  1. 23 January, 08:25
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    12.74%

    Explanation:

    Given that

    Expected dividend = 2.41

    Growth rate = 7% = 0.07

    Common stock price = 42

    Recall that

    Cost of retained earning = (Dividend/common stock price) + growth rate

    Thus,

    = 2.41/42 + 0.07

    = 0.05738 + 0.07

    = 0.12738

    = 0.1274

    = 12.74%
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