Use retained earnings rather than issue new common stock

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The Global Advertising Co. has a tax rate of 40%. The company can raise debt at a 12% interest rate. Global's stock price is $8.59 per share and it recently issued a dividend of $0.90, which is expected to grow at a constant rate of 5%. If Global issues new common stock, the flotation cost incurred will be 10%. Global plans to finance all capital expenditures with 30% debt and 70% equity. What is Global's cost of retained earnings if it can use retained earnings rather than issue new common stock?

a. 12.22%

b. 17.22%

c. 10.33 %

d. 9.66 %

e. 16.00 %

Reference no: EM131588034

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