Jiffy co. expects to pay a dividend of $3.00 per share in one year. the current price of jiffy common stock is $60 per share. flotation costs are $3.00 per share when jiffy issues new stock. what is the cost of internal common equity (retained earnings) if the long-term growth in dividends is projected to be 8 percent indefinitely? select one:
a. 14 percent
b. 13 percent
c. 15 percent
d. 16 percent

b. 13 percent

Explanation:

For computing the cost of internal common equity, we need to apply the formula which is shown below:

= (Expected dividend in one-year ÷ current price per share of common stock) + expected Growth rate

= ($3 ÷ $60) + 8%

= 5% + 8%

= 13%

We simply divide the expected dividend by current price and then add the growth rate to find out the cost of internal common equity

The flotation cost would not be impacted. Hence, we ignored it.

the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.

was my answer wrong?