Question: Analysts of the ICM Corporation have indicated that the company
Analysts of the ICM Corporation have indicated that the company is expected to grow at a 5 percent rate for as long as it is in business. Currently, ICM’s stock is selling for $70 per share. The most recent dividend paid by the company was $5.60 per share. If ICM issues new common stock, it will incur flotation costs equal to 7 percent. ICM’s marginal tax rate is 35 percent. What is its cost of retained earnings—that is, its internal equity? What is its cost of new equity?
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