11-13 Murray Motor Company wants you to calculate its cost of common stock During the next 12 months, the company expects to pay dividends ( di)of $2.50 er share, and the current price of its common stock is $50 per share. The expected growth rate is percent a. Compute the cost of retained earnings( Ke). Use Formula 11-6 b. If a $3 floatation cost is involved, compute the cost of new common stock (Kn). Use Formula 11-7 Solution: Murray motor co aK_ D g $2.50 Ss0+8%=5%+8%=13% D b. K g $2.50 $2.50 +8%= +8% $50-$3 $47 =5.32%+8%=13.32% CopyrightC 2005 by The McGray-Hill Companies, Inc. -392Copyright © 2005 by The McGraw-Hill Companies, Inc. S-392 11-13. Murray Motor Company wants you to calculate its cost of common stock. During the next 12 months, the company expects to pay dividends (D1) of $2.50 per share, and the current price of its common stock is $50 per share. The expected growth rate is 8 percent. a. Compute the cost of retained earnings (Ke). Use Formula 11-6. b. If a $3 floatation cost is involved, compute the cost of new common stock (Kn). Use Formula 11-7. Solution: Murray Motor Co. 8% 5% 8% 13% $50 $2.50 g P D a. K 0 1 e = + = + = = + 5.32% 8% 13.32% 8% $47 $2.50 8% $50 $3 $2.50 g P F D b. K 0 1 n = + = + = + − = + − =