S Bouchard and Company Hired You as a Consultant to Help

Multiple Choice

S. Bouchard and Company hired you as a consultant to help estimate its cost of common equity. You have obtained the following data: D0 =
$0) 85; P0 = $22.00; and g = 6.00% (constant) . The CEO thinks, however, that the stock price is temporarily depressed, and that it will soon rise to $40.00. Based on the DCF approach, by how much would the cost of common from retained earnings change if the stock price changes as the CEO expects?

A) -1.49%
B) -1.66%
C) -1.84%
D) -2.03%
E) -2.23%