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Question
Phillips Enterprises Inc. is expected to pay a dividend of $2.60 next year. Dividends are expected to grow at a constant rate of 8% per year, and the stock price is currently $20.00. New stock can be sold at this price subject to flotation costs of 15%. The company's marginal tax rate is 35%. Compute the cost of internal equity (retained earnings) and the cost of external equity (new common stock), respectively.A) 0, 21.00%
B) 8.00%, 23.29%
C) 21.00%, 23.29%
D) 23.00%, 25.48%
Answer
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