If the dividends currently paid on a share of common stock are $3.00 per share, the price of the stock is $50, and the growth rate is 10%, calculate the cost of retained earnings.
A) 6.6%
B) 6%
C) 16%
D) 16.6%

Question

Quizplus · Accepted Answer

The cost of retained earnings can be calculated using the Gordon Growth Model (also known as the Dividend Discount Model for a perpetuity with growth). The formula is: Cost of Retained Earnings = (Dividends per Share / Price per Share) + Growth Rate = ($3.00 / $50) + 10% = 0.06 + 10% = 16.6%.

If the Dividends Currently Paid on a Share of Common