Sentry manufacturing paid a dividend yesterday of$5 per share (do = $4). the dividend is expected to grow at a constant rate of 8% per year. the price of sentry manufacturing's stock today is $29 per share. if sentry manufacturing decides to issue new common stock, flotation costs will equal $2.50 per share. sentry manufacturing's marginal tax rate is 35%. based on the above information, the cost of retained earnings isa. 24.12%b. 31.4%c. 28.38%d. 26.62%

d. 26.62%

Explanation:

The formula to compute the cost of the retained earning is shown below:

Current Price = Current dividend ×  (1 + growth rate) ÷ Retained earning - growth rate

$29 = $5 × (1 + 0.08) ÷ (Retained earning - 0.08)

$ 29 = $5 × 1.08  ÷ (Retained earning - 0.08)

By solving this equation, the cost of retained earning would be 26.62%

All other information which is given is not relevant. Hence, ignored it

answer; consideration;

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