SBouchard 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 capital.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 equity 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%