Stuck!! please help..

[amoreno123]

The question is what are the retained earnings and the cost of new common stock..

the management of a conservative firm has adopted a policy of never letting debt exceed 30 percent total financing. the firm will earn $10,000,000 but distribute 40% in dividends, so the firm will earn $6,000,000 to add to retained earnings. currently the price of stock is $50; the company pays a $2 per share dividned, which is expected to grow annually at 10%. if the company sells new shares, the net to the company will be $48.
given this information, what is the cost of retained earnings and the cost of new stock?

 

[Deleted member 4993]

The question is what are the retained earnings and the cost of new common stock..

the management of a conservative firm has adopted a policy of never letting debt exceed 30 percent total financing. the firm will earn $10,000,000 but distribute 40% in dividends, so the firm will earn $6,000,000 to add to retained earnings. currently the price of stock is $50; the company pays a $2 per share dividned, which is expected to grow annually at 10%. if the company sells new shares, the net to the company will be $48.
given this information, what is the cost of retained earnings and the cost of new stock?

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