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valentinak56 [21]
3 years ago
7

Johnson Production Company paid a dividend yesterday of $3.50 per share. The dividend is expected to grow at a constant rate of

10% per year. The price of KayCee's common stock today is $40 per share. If KayCee decides to issue new common stock, flotation costs will equal $4.00 per share. KayCee's marginal tax rate is 35%. Based on the above information, the cost of retained earnings is what?
Business
1 answer:
Flauer [41]3 years ago
7 0

Answer:

0.19625 or 19.63%

Explanation:

Cost of retained earnings, r:

=\frac{D0\times(1+g)}{P0}+g

where,

D0 = Dividend paid yesterday

g = Expected growth rate of dividend

P0 = Current price of common stock

=\frac{3.50\times(1+0.1)}{40}+0.1

=\frac{3.85}{40}+0.1

      = 0.09625 + 0.1

      = 0.19625 or 19.63%

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how much passive activity loss can White Corporation deduct

solution

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