Rivoli Inc.hired you as a consultant to help estimate its cost of capital.You have been provided with the following data: D₀ = $0.80;P₀ = $35.00;and g = 8.00% (constant).Based on the DCF approach,what is the cost of equity from retained earnings? Do not round your intermediate calculations.

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Quizplus · Accepted Answer

Using the dividend discount model, the cost of equity from retained earnings can be calculated as: Ke = (D1 / Ps) + g D1 = D₀ * (1 + g) = $0.80 * (1 + 0.08) = $0.864 Ke = ($0.864 / $35.00) + 0.08 = 0.02469 + 0.08 = 0.10469 or 10.47%