Question

Assume that you are a consultant to Broske Inc, and you have been provided with the following data D1=$0.67, PO=$27.50, and g=8.00% (constant). What is the cost of equity from retained earnings based on the DCF approach?A. 9.42%B. 10.96%C. 10.44%D. 9.91%E. 11.51%

Answer 1

Answer:

C. 10.44%

Explanation:

The formula to compute the cost of equity is shown below:

= Current year dividend ÷ price + growth rate

= D1 ÷ P0 + g

= $0.67 ÷ $27.50 + 8%

= 0.02436 + 0.08

= 10.44%

Simply we apply the DCF approach to compute the cost of equity so that the correct cost of equity could be computed

Hence, all the items would be considered for the computation part