Assume that you are a consultant to Tintle Inc., and you have been provided with

Question

Assume that you are a consultant to Tintle Inc., and you have been provided with the following data: D1 = $0.81; P0 = $23.43; g = 4.00% (constant). What is the cost of common equity from retained earnings based on the DCF approach?
A) 3.46% B) 4.00% C) 4.81% D) 4.97% E) 7.46% Assume that you are a consultant to Tintle Inc., and you have been provided with the following data: D1 = $0.81; P0 = $23.43; g = 4.00% (constant). What is the cost of common equity from retained earnings based on the DCF approach?
A) 3.46% B) 4.00% C) 4.81% D) 4.97% E) 7.46%
A) 3.46% B) 4.00% C) 4.81% D) 4.97% E) 7.46%

Explanation / Answer

Cost of common equity based on DCF = D1/P0+g

= $0.81/$23.43+0.04

= 0.03457 + 0.04

= 0.07457 or 7.457%

Therefore, option E is correct.

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