Reynolds Textiles wants to measure its cost of common equity. The firm's stock is currently selling for $57.50 per share. The firm expects to pay a $3.40 dividend at the end of 2011 (so assume that D1 = $3.40 for purposes of calculation). The dividends for the last 5 years are as follows:
After incurring flotation costs, Reynolds Textiles expects to net $52 per share on a new issue.
(a) Determine the growth rate of dividends (g).
(b) By applying the constant-growth valuation model, determine the cost of retained earnings common equity (rs).
(c) By applying the constant-growth valuation model, determine the cost of newly-issued common equity (re).