q5/6

Allison Engines Corporation has established a target capital structure of 40 percent debt and 60 percent common equity. The current market price of the firm's stock is PO = $42.7; its last dividend was DO = $5.7, and its expected dividend growth rate is 6 percent. What will Allison's marginal cost of retained earnings, rs, be? 0 20.15% O 16.15% W W O 19.15% O 17.15% O 18.15% The common stock of Anthony Steel has a beta of 0.6. The risk-free rate is 3.2 percent and the market risk premium (rM - PRF) is 6.8 percent. Assume the firm will be able to use retained earnings to fund the equity portion of its capital budget. What is the company's cost of retained earnings, rs? O 6.88% O 8.08% O 8.48% O 7.28% O 7.68%