You were recently hired by Scheuer Media Inc.to estimate its cost of capital.You obtained the following data: D₁ = $1.75;P₀ = $95.00;g = 7.00% (constant);and F = 5.00%.What is the cost of equity raised by selling new common stock?

Question

Quizplus · Accepted Answer

The cost of equity using the Dividend Discount Model (DDM) with flotation costs is calculated as: (D1 / (P0 * (1 - F))) + g = ($1.75 / ($95 * (1 - 0.05))) + 0.07 = 8.94%.

You Were Recently Hired by Scheuer Media Inc