Retained earnings versus new common stock Using the data for each firm shown in the following table, calculate the cost of retained earnings and the cost of new common stock using the constant-growth valuation model.

Firm Current Dividend Projected Underpricing Flotation

market growth dividend per share cost per

price per rate per share share

share next year

A $50.00 8% $ 2.25 $ 2.00 $ 1.00

B 20.00 4 1.00 .50 1.50

C 42.50 6 2.00 1.00 2.00

D 19.00 2 2.10 1.30 1.70