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Allison Engines Corporation has established a target capital structure of 40 percent debt and 60 percent common equity. The current market price of the firm's stock is P
0
= $28; its last dividend was D
0
= $2.20, and its expected dividend growth rate is 6 percent. What will Allison's marginal cost of retained earnings, ks, be?
a. 15.8%
b. 13.9%
c. 7.9%
d. 14.3%

Answer :

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$2.20, and its expected dividend growth rate is 6 percent. What will Allison's marginal cost of retained earnings, ks , be 14.3%.

Has a target capital structure of 40% debt and 60% common stock been set?

The target capital structure for Allison Engines Corporation is made up of 40% debt and 60% common equity. The firm's stock is currently trading at P0 = $28; its most recent dividend was D0 = $2.20; and its predicted dividend growth rate is 6%.

What does a debt-to-income ratio of 60% mean?

This ratio looks at how much of the business is financed by debt. A corporation would be supported 60 percent by long-term and short-term debt if its debt to assets ratio was 60 percent. Most businesses record some sort of debt on their records.

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