You are a finance intern at Chambers and Sons and they have asked you to help estimate the company's cost of common equity. You obtained the following data: D1 = $1.25; P0 = $27.50; gL = 5.00% (constant); and F = 6.00%. What is the cost of equity raised by selling new common stock?
A) 9.06%
B) 9.44%
C) 9.84%
D) 10.23%
E) 10.64%

Question

Quizplus · Accepted Answer

$\begin{array}{lr}
\mathrm{D}_{1} & \$ 1.25 \
\mathrm{P}_{0} & \$ 27.50 \
\mathrm{~g} & 5.00 \% \
\mathrm{~F} & 6.00 \% \
\mathrm{I}_{\mathrm{e}}=\mathrm{D}_{1} /\left(\mathrm{P}_{0} \times(1-\mathrm{F})\right)+\mathrm{g}= & 9.84 \%
\end{array}$

You Are a Finance Intern at Chambers and Sons and They