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?
A. 11.10%
B. 11.68%
C. 12.30%
D. 12.94%
E. 13.59%
Answer: D
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