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To Help Them Estimate the Company's Cost of Capital, Smithco

Question 18

Multiple Choice

To help them estimate the company's cost of capital, Smithco has hired you as a consultant. You have been provided with the following data: D1 = $1.45; P0 = $22.50; and gL = 6.50% (constant) . Based on the dividend growth approach, what is the cost of common from reinvested earnings?


A) 11.10%
B) 11.68%
C) 12.30%
D) 12.94%
E) 13.59%

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