What is the percentage cost of retained earnings

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Problem: The Mays Co. has established a target capital structure of 45 percent debt, 10 percent preferred, and 45 percent common equity. Mays must pay a 6 percent flotation fee if it issues new common stock. The current market price of the firm's stock is $48; its last dividend was $0.68, and its expected growth rate is 13 percent. The firm's projected net income for next year is $158 million and it maintains a dividend payout ratio of 25 percent. The capital budget for next year is $200,000,000.

a. What is the percentage cost of retained earnings?

b. What is the percentage cost of a new common stock issue?

c. What is the maximum capital budget that Mays can support with retained earnings?

d. Given the $200,000,000 budget, what will be Mays' marginal percentage cost of common equity

Reference no: EM132485030

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