Contemporary Engineering Economics 6th Edition by Chan Park

Exercise 3

Refer to Problem, and suppose that Mobil wants to raise capital to finance a new project by issuing new common stock. With the new project, the cash dividend is expected to be $ 1.10 at the end of the current year, and its growth rate is 10%. The stock now sells for $18, but new common stock can be sold to net Mobil $15 per share.
(a) What is Mobil's flotation cost, expressed as a percentage
(b) What is Mobil's cost of new common stock
Problem
The Mobil Appliance Company's earnings, dividends, and stock price are expected to grow at an annual rate of 12%. Mobil's common stock is currently traded at $18 per share. Mobil's last cash dividend was $1.00, and its expected cash dividend for the end of this year is $1.12. Determine the cost of retained earnings ( k r ).