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 gL = 7.00% (constant). Based on the dividend growth model, 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

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 gL = 7.00% (constant). Based on the dividend growth model, what is the cost of common from reinvested earnings?
A) 9.29%
B) 9.68%
C) 10.08%
D) 10.50%
E) 10.92%

Quizplus · Accepted Answer

$\begin{array}{l}
\begin{array} { l } 
D _ { 0 } \
P _ { 0 } \
D _ { 1 } = D _ { D } \times ( 1 + \text { D } \
D _ { 5 } = D _ { 1 } / P _ { 0 } + \text { g }\
r_{s}=D_{1} / P_{n}+g
\end{array}
\begin{array} { l } 
50.90 \
27.50 \
7.00 \% \
\$ 0.963\
10.50 \%
\end{array}
\end{array}$

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