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sdas [7]
3 years ago
8

Jacko Inc. hired you as a consultant to help estimate its cost of capital. You have been provided with the following data: D0 =

$0.80; P0 = $57.50; and g = 8.00% (constant). Based on the DCF approach, what is the cost of equity from retained earnings? Do not round your intermediate calculations.
Business
1 answer:
Valentin [98]3 years ago
5 0

Answer:

Jacko Inc Costo fo Capitak8.15%

Explanation:

From the gordon model for stock valuation

\frac{divends}{return-growth} = Intrinsic \: Value

<em><u>we clear and solve for cost of equity </u></em>

\frac{divends}{Price} = return-growth

\frac{divends}{Price} + growth = return

$Cost of Equity =\frac{D_1}{P} +g

D1 = D0(1+g)= 0.8 (1.08) = 0.0864

P 57.5

g 0.08

$Cost of Equity =\frac{0.0864}{57.5} +0.08

Ke 0.081502609 = 8.15%

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