Phillips enterprises inc. is expected to pay a dividend of $2.60 next year. dividends are expected to grow at a constant rate of 8% per year, and the stock price is currently $20.00. new stock can be sold at this price subject to flotation costs of 15%. the company's marginal tax rate is 35%. compute the cost of internal equity (retained earnings) and the cost of external equity (new common stock), respectively. a) 0, 21.00%b) 8.00%, 23.29%c) 21.00%, 23.29%d) 23.00%, 25.48%

Cost of internal equity =21%

Cost of external Equity =23.29%

Explanation:

Using the constant growth model:

if ke is made subject of formula then the cost of internal equity ke is calculated as follows:

= = 21%

If external equity is to be used, that means that the company will have to issue share to get a fresh infection of capital into the company, and is thus likely to face flotation costs. the company will  receive a net of $20 minus flotation costs for every share sold.

If ke is made subject of formula then the cost of external equity ke is calculated as follows:

= = 23.29%

1) the stages a new product goes through from beginning to end, i.e., the stages that a product passes through from introduction through growth, maturity, and decline. 2) the time from initial research and development to the time at which sales and support of the product to customers are withdrawn. 3) the period of time during which a product can be produced and marketed profitably.

                                          hope it

answer; whoever is willing and able to pay the price;