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?Group of answer choices12.94%11.68%12.30%13.59%11.10%

Information Provided: Dividend(1) = $1.45 Price = $22.50 Groth rate = 6.5%

Answered: ). Based on the dividend growth…

Business

Finance

). Based on the dividend growth approach, what is the cost of common from reinvested earnings? Group of answer choices

Fundamentals of Financial Management (MindTap Course List)

14th Edition

ISBN:9781285867977

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter10: The Cost Of Capital

Section: Chapter Questions

Problem 2TCL

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Question

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 g_L = 6.50% (constant). Based on the dividend growth approach, what is the cost of common from reinvested earnings?

Group of answer choices

12.94%

11.68%

12.30%

13.59%

11.10%

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