J Ross and Sons Inc

Multiple Choice

J. Ross and Sons Inc. has a target capital structure that calls for 40 percent debt, 10 percent preferred stock, and 50 percent common equity. Ross' common stock currently sells for $40 per share. The firm recently paid a dividend of $2 per share on its common stock, and investors expect the dividend to grow indefinitely at a constant rate of 10 percent per year. Which of the following is the firm's cost of retained earnings? (Round off the answer to two decimal places.)

A) 16.34 percent
B) 10.42 percent
C) 15.50 percent
D) 12.20 percent
E) 13.25 percent