Problem:
Keys Manufacturing Company paid a dividend yesterday of $1.50 per share (D0=$1.50). The dividend is expected to grow at a constant rate of 7% per year. The price of Key's common stock today is $19 per share. If Keys decides to issue new common stock, flotation cost will equal $1.00 per share. Keys' marginal tax rate is 35%. Based on the above information, the cost of retained earnings is:
A) 8.52 %
B) 12.38%
C) 15.45%
D) 14.89%
Note: Please provide full description.