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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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