As the assistant to the CFO of Johnstone Inc.,you must estimate its cost of common equity.You have been provided with the following data: D₀ = $0.80; P₀ = $22.50; and g = 8.00% (constant).Based on the DCF approach,what is the cost of common from reinvested earnings? A) 10.69% B) 11.25% C) 11.84% D) 12.43% E) 13.05%

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Quizplus · Accepted Answer

$$\begin{array} { l r } 
D_ { 0 } &  \$0.08\
P _ { 0 } & \$ 22.50 \
\text { g } & 8.00\% \
D _ { 1 } = D _ { 0 } \times ( 1 + \mathrm { g } )  & \$ 0.864 \
r_{s}=D_{1} / P_{0}+g& 11.84 \%
\end{array}$$

As the Assistant to the CFO of Johnstone Inc