P9-11 Retained earnings versus new common stock Using the data for each rm shown in the following table, calculate the cost of retained earnings and the cost of new common stock using the constant-growth valuation model. Fir Current market Dividend Projected dividend Under-pricing Flotation cost rn price per share growth rate per share next year per share per share A $50.00 8% $2.25 $2.00 $1.00 B 20.00 4 1.00 0.50 1.50 C 42.50 6 2.00 1.00 2.00 D 19.00 2 2.10 1.30 1.70 r v a + r '- Q + ' _ Pn g " _ N. g Firm Calculation A r, = ($2.25 + $50.00) + 8% = 12.50% r,,=(32.25 + $47.00)+ 8%:12.79%