Compute the cost of internal earnings

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Reference no: EM1355672

Verigreen Lawn Care products just paid a dividend of $1.85. This dividend is expected to grow at a constant rate of 3% per year, so the next expected dividend is $1.90. The stock price is currently $12.50. New stock can be sold at this price subject to flotation costs of 15%. The company's marginal tax rate is 40%. Compute the cost of internal (retained) earnings and the cost of external equity (new common stock).
a. 0, 17.8%
b. 15.2%, 17.8%
c. 18.2%, 20.9%
d. 18.2%, 16.21%

Reference no: EM1355672

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