Question

As a consultant to Basso Inc., you have been provided with the following data: D1 = $0.67; P0 = $27.50; and g = 8.00% (constant). What is the cost of common from reinvested earnings based on the DCF approach? Select one: a. 9.42% b. 9.91% c. 10.44% d. 10.96% e. 11.51%

Answer 1

Answer:

Cost of common from reinvested earnings  = 10.44 %

so correct option is c. 10.44%

Explanation:

given data

D1 = $0.67

Po = $27.50

g = 8.00%

to find out

cost of common from reinvested earnings based on the DCF approach

solution

we get here Cost of common from reinvested earnings that is express a s

Cost of common from reinvested earnings  = $\frac{D1}{Po}$ + g   ............1

put here value we get

Cost of common from reinvested earnings  = $\frac{0.67}{27.50}$ + 8%

Cost of common from reinvested earnings  = 10.44 %

so correct option is c. 10.44%