Question

Assume that you are a consultant to Lotte Inc., and you have been provided with the following data: D1 = $0.67; P0 = $27.50; and g = 7.00% (constant). What is the cost of equity from retained earnings based on the DCF approach? 11.12% 10.87% 10.32% 9.44% 9.15%

Answer 1

The cost of equity from retained earnings based on the DCF approach=9.44%

Explanation:

• The cost of equity from retained earnings based on the DCF approach can be calculated as follows,

• For D1  = $0.67

• For P0 = $27.50

• For  g = 7.00%

• Therefore, rs = $\frac{D1}{PO}$ + g

• The answer is =9.44%