S. Bouchard and Company hired you as a consultant to help estimate its cost of common equity. You have obtained the following data: D0 = $0.85; P0 = $22.00; and g = 6.00% (constant). The CEO thinks, however, that the stock price is temporarily depressed, and that it will soon rise to $40.00. By how much would the cost of common from retained earnings change if the stock price changes as the CEO expects?
A) -1.49%
B) -1.66%
C) -1.84%
D) -2.03%
Ans: C) -1.84%
Business
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