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Jarett & Son's common stock currently trades at $30.00 a share. It is expected to pay an annual dividend of $1.00 a share at the end of the year, and the constant growth rate is 4% a year.What is the company's cost of common equity if all of its equity comes from retained earnings?If the company issued new stock, it would incur a 10% flotation cost. What would be the cost of equity from new stock?

Question

Jarett & Son's common stock currently trades at $30.00 a share. It is expected to pay an annual dividend of $1.00 a share at the end of the year, and the constant growth rate is 4% a year.
What is the company's cost of common equity if all of its equity comes from retained earnings?
If the company issued new stock, it would incur a 10% flotation cost. What would be the cost of equity from new stock?

check_circleAnswer
Step 1

Part 1 When equity is financed through all Retained earnings, then the cost of equity based on market price is computed as above.

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Finance

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