Problem regarding the company cost of retained earnings

Reference no: EM131030046

Problem:

Tip Top Hats (TTH) is expected to grow at a 4 percent rate for as long as it is in business. Currently the company's common stock is selling for $34 per share. The most recent dividend paid by TTH was $4. 25 per share. If new common stock is issued, TTH will incur flotation costs equal to 8. 5 percent,

Required:

Question 1: What is the company's cost of retained earnings?

Question 2: What is its cost of new common equity?

Reference no: EM131030046

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