### Compute the cost of new common stock-retained earnings

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##### Reference no: EM131192468

Murray Motor Company wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D1) of \$2.50 per share, and the current price of its common stock is \$50 per share. The expected growth rate is 8 percent.

a. Compute the cost of retained earnings (Ke). Use Formula 11-6.

b. If a \$3 flotation cost is involved, compute the cost of new common stock (Kn).

Use Formula 11-7.

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