The firm's cost of retained earnings, based on the dividend yield, the growth rate, and the tax rate is 13%.
The cost of retained earnings can be found using the Gordon Growth model such that the formula is:
= Next dividend / Cost and selling value of stock + Growth rate
The firm's cost of retained earnings is therefore:
= (6% x 65) / 65 + 0.07
= 3.9 / 65 + 0.07
= 0.06 + 0.07
= 13%
The cost of retained earnings to the firm is 13%.
Find out more on cost of retained earnings at https://brainly.com/question/15967187
#SPJ1
