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Estimating common stock from retained earnings

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What are three methods for estimating the cost of common stock from retained earnings? Which of these methods provides the most accurate and reliable estimate?

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Tax rate = 38.0%
After Tax
Cost of: Weights Cost Cost WACC
Debt 36% 7.80% 4.84%
Preferred 14% 7.00% 7.00%
Common 50% 11.75% 11.75%
WACC 100% 0.00%

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Solution Summary

This solution outline the three methods for estimating the common stock from retained earnings and explains which of them is the most accurate and reliable. Additionally, the WACC is determined using this method in Excel.

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** Please see the attached file for the complete solution **

Challenge Problem Template

Tax rate = 38.0%
After Tax
Cost of: Weights Cost Cost ...

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