Determine the cost of internal equity

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Reference no: EM131324606

The Gordon Company currently pays an annual common stock dividend of $4.00 per share. Its dividend payments have been growing at a steady rate of 6 percent per year, and this rate of growth is expected to continue for the foreseeable future. Gordon's common stock is currently selling for $65.25 per share. The company can sell additional shares of common stock after flotation costs at a net price of $60.50 per share. Based on the dividend capitalization model, determine the cost of

a. Internal equity (retained earnings)

b. External equity (new common stock)

Reference no: EM131324606

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