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; gL = 7.00% (constant); and F = 5.00%. What is the cost of equity raised by selling new common stock?

Question

Quizplus · Accepted Answer

$\begin{array}{lr}
\mathrm{D}_{1} & \$ 1.75 \
\mathrm{P}_{0} & \$ 42.50 \
\mathrm{~g} & 7.00 \% \
\mathrm{~F} & 5.00 \% \
\mathrm{I}_{\mathrm{e}}=\mathrm{D}_{1} /\left(\mathrm{P}_{0} \times(1-\mathrm{F})\right)+\mathrm{g} & 11.33 \%
\end{array}$

You Were Recently Hired by Garrett Design, Inc