Question

Murray Motor Company wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D1) of $1.80 per share, and the current price of its common stock is $36 per share. The expected growth rate is 9 percent. a. Compute the cost of retained earnings (Ke)

Answer 1

Answer:

Cost of retained earnings  = 0.13

Explanation:

given data

(D1) = $1.80

current price = $36  

growth rate = 9 percent

solution

we get here Cost of retained earnings  (Ke) that is express as

Cost of retained earnings = ( D1 ÷ P ) + g    ................1

here P is price and g is growth rate

put here value and we get

Cost of retained earnings =  (1.80 ÷ 36 ) + 0.08

Cost of retained earnings  = 0.13