Haroldson Inc started selling for 22 per share the last divi

Haroldson Inc, started selling for $22 per share the last dividend well was $1.20 and dividends are expected to grow at a 6% annual rate. flotation costs on new stocks sales are 5% of the selling price. what is the cost of Haroldson\'s retained earnings ? 12.09% 11.78% 11.45% 5.73%

Solution

the cost of retained earnings= D1/ P0+g, where D1 is the present dividend, P0 is the share price and g is the growth rate

cost = 1.20+6%/ 22= 1.272/22= 5.7818%

when we deducts the issue costs, it becomes 5.73%