The cost of retained earnings

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Reference no: EM131926377

1. Sentry Manufacturing just paid a dividend $5 per share. The dividend is expected to grow at a constant rate of 7% per year. The price of Sentry Manufacturing's stock today is $32 per share. If Sentry Manufacturing decides to issue new common stock, flotation costs will equal $2.70 per share. Sentry Manufacturing's marginal tax rate is 35%. Based on the above information, the cost of retained earnings (internal equity) is

A) 23.72%.

B) 24.12%.

C) 26.62%.

D) 25.26%

2. James Construction Co. is considering a new inventory system that will cost $950,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $350,000 in year two, $150,000 in year three, and $180,000 in year four. The required rate of return is 8%. What is the payback period of this project?

A) 4.00 years

B) 3.56 years

C) 2.91 years

D) 2.50 years

Reference no: EM131926377

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