To help estimate its cost of common equity,Maxwell and Associates recently hired you.You have obtained the following data: D₀ = $0.90; P₀ = $27.50; and g = 7.00% (constant).Based on the DCF approach,what is the cost of common from reinvested earnings? A) 9.29% B) 9.68% C) 10.08% D) 10.50% E) 10.92%

Question

Quizplus · Accepted Answer

$$\begin{array} { l r } 
D_ { 0 } &  \$0.90\
P _ { 0 } & \$ 27.50 \
\text { g } & 7.00\% \
D _ { 1 } = D _ { 0 } \times ( 1 + \mathrm { g } )  & \$ 0.963 \
r_{s}=D_{1} / P_{0}+g& 10.50 \%
\end{array}$$

To Help Estimate Its Cost of Common Equity,Maxwell and Associates