To help them estimate the company's cost of capital,Smithco has hired you as a consultant.You have been provided with the following data: D₁ = $1.45; P₀ = $22.50; and g = 6.50% (constant).Based on the DCF approach,what is the cost of common from reinvested earnings?

Question

Quizplus · Accepted Answer

$\begin{array}{lr}
\mathrm{D}_{1} & \$ 1.45 \
P_{0} & \$ 22.50 \
\mathrm{~g} & 6.50 \% \
\mathrm{r}_{\mathrm{s}}=\mathrm{D}_{1} / \mathrm{P}_{0}+\mathrm{g} & 12.94 \%
\end{array}$

To Help Them Estimate the Company's Cost of Capital,Smithco Has