You were recently hired by Garrett Design,Inc.to estimate its cost of common equity.You obtained the following data: D₁ = $1.75; P₀ = $42.50; g = 7.00% (constant); and F = 5.00%.What is the cost of equity raised by selling new common stock? A) 10.77% B) 11.33% C) 11.90% D) 12.50% E) 13.12%

Question

Quizplus · Accepted Answer

$$\begin{array} { l r } 
\mathrm { P } _ { 1 } & \$ 11.75 \
\mathrm { P } _ { 0 } & \$ 42.50 \
\mathrm {g} & 7.00 \% \
\mathrm {F} & 5.00 \% \
\mathrm { r } _ { e } = \mathrm { D } _ { 1 } / \left( \mathrm { P } _ { 0 } \times ( 1 - \mathrm { F } ) + \mathrm { g } \right. & 11.33 \%
\end{array}$$

You Were Recently Hired by Garrett Design,Inc