Teall Development Company hired you as a consultant to help them estimate its cost of capital....
Teall Development Company hired you as a consultant to help them estimate its cost of capital. You have been provided with the following data: D1 = $1.45; P0 = $26.00; and g = 6.50% (constant). Based on the DCF approach, what is the cost of equity from retained earnings?
Group of answer choices
12.68%
11.84%
12.08%
10.63%
9.78%
Homework Answers
Ans 12.08%
| P0 = | Price of Share |
| D1 = | Current Dividend |
| Ke = | Cost of Equity |
| g = | growth rate |
| P0 = | D1 / (Ke - g) |
| 26 = | 1.45 / (Ke - 6.50%) |
| Ke - 6.50% = | 1.45 / 26 |
| Ke - 6.50% = | 5.58% |
| Ke = | 12.08% |
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