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 gL = 8.00% (constant). Based on the dividend growth model, what is the cost of common from reinvested earnings?
A) 10.69%
B) 11.25%
C) 11.84%
D) 12.43%
E) 13.05%

Question

Quizplus · Accepted Answer

$\begin{array}{l}
\begin{array} { l } 
D _ { 0} \
P _ { 0 } \
D _ { 1 } = D _ { D } \times ( 1 + \text { D } \
D _ { 2 } = D _ { 1 } / P _ { 0 } + g\
r_{s}=D_{1} / P_{n}+g
\end{array}
\begin{array} { l } 
30.80 \
22.50 \
8.00 \% \
\$ 0.864\
11.84\%
\end{array}
\end{array}$

As the Assistant to the CFO of Johnstone Inc