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Question Builtrite’s common stock is currently selling for $56 a share and the firm just paid an annual dividend of $2.20 per share. Management believes that dividends and earnings should grow at 9% annually. Based on this, and a marginal tax rate of 34%, what is the cost of common stock (also known as the cost of retained earnings)?

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Question

Builtrite’s common stock is currently selling for $56 a share and the firm just paid an annual dividend of $2.20

per share. Management believes that dividends and earnings should grow at 9% annually. Based on this, and a marginal tax rate of 34%, what is the cost of common stock (also known as the cost of retained earnings)?

 
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