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 longminusterm growth in dividends is projected to be 8 percent indefinitely

B13%, explained below:

Explanation:

Flotaion cost doesn't impact the cost of existing equity and it only impact the cost of new equity. The question asks about cost of existing equity, hence

Cost of equity ={ Expected dividend in one year/ Stock price} + growth rate = 3 /60% + 8%

Cost of existing equity (Retained earnings) = 13%

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