Question

Assume that Kish Inc. hired you as a consultant to help estimate its cost of capital. You have obtained the following data: D0 = $0.90; P0 = $27.50; and g = 7.00% (constant). Based on the DCF approach, what is the cost of equity from retained earnings?

Answer 1

The cost of equity from retained earnings based on the DCF approach is 10.50%

Step-by-step explanation:

In order to calculate the cost of equity from retained earnings based on the DCF approach we would have to calculate the following formula:

Cost of Equity = (D1/P0) + growth rate

Cost of Equity =[($0.9 x 1.07)/$27.50] + 0.07

Cost of Equity = 0.1050

Cost of Equity =10.50%

Therefore, The cost of equity from retained earnings based on the DCF approach is 10.50%