Determine what is robinsons cost of retained earnings

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Reference no: EM13334717

Robinson Company has a marginal tax rate of 40%. The firm can raise debt at a 12% interest rate and the last dividend paid by the firm was $0.90. Robinson 's common stock is selling for $8.59 per share, and its expected growth rate in earnings and dividends is 5%. If Robinson issues new common stock, the flotation cost incurred will be 10%. The firm plans to financial all capital expenditures with 30% debt and 70% equity.

A.) What is Robinson's cost of retained earnings if it can use retained earnings rather than issue new common stock?

B.) What is the cost of the common equity raised by selling new stock?

C.) What is the firm's WACC if the firm has sufficient retained earnings to fund the equity portion of its capital budget?

Reference no: EM13334717

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