Assume that you are a consultant to Broske Inc., and you have been provided with the following data: D1 = $0.67; P0 = $27.50; and g = 8.00% (constant). What is the cost of common from retained earnings based on the DCF approach?

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Quizplus · Accepted Answer

The cost of common equity from retained earnings using the Dividend Discount Model (DCF approach) is calculated as: Cost of Equity = (D1 / P0) + g = ($0.67 / $27.50) + 0.08 = 0.02436 + 0.08 = 0.10436 or 10.44%.

Assume That You Are a Consultant to Broske Inc