Question

Edna Recording​ Studios, Inc., reported earnings available to common stock of

​$5,000,000

last year. From those​ earnings, the company paid a dividend of

​$1.15

on each of its

1,000,000

common shares outstanding. The capital structure of the company includes

45​%

​debt,

10​%

preferred​ stock, and

45​%

common stock. It is taxed at a rate of

30​%.

 If the market price of the common stock is

​$31

and dividends are expected to grow at a rate of

9​%

per year for the foreseeable​ future, what is the​ company's cost of retained earnings

financing​ 13.04

 If underpricing and flotation costs on new shares of common stock amount to

​$7

per​ share, what is the​ company's cost of new common stock

financing​?

Answer 1