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What is the component cost of ferny common share

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Problem 1: Ferny Inc. currently has 60 million common shares outstanding that have a current market price of $13 per share. The shares paid a dividend of $1.50 per share last year, and investment analysts expect the dividends to grow at an average annual rate of 2% for the foreseeable future. If flotation costs on new common shares are expected to be 3% after tax, Ferny's tax rate is 30% and Ferny intends to finance its growth from retained earnings, what is the component cost of Ferny's common shares?

a) 11.77%
b) 13.54%
c) 13.77%
d) 14.13%

Reference no: EM132781274

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