1. As the assistant to the CFO of Johnstone Inc., you must estimate its cost of common equity. You have been provided with the following data: D0 = $0.85; P0 = $28.50; and g = 6.00% (constant). Based on the DCF approach, what is the cost of common from reinvested earnings?

9.16%

9.85%

11.14%

13.04%

14.59%

2. Trahern Baking Co. common stock sells for $36.15 per share. It expects to earn $4.00 per share during the current year, its expected dividend payout ratio is 65%, and its expected constant dividend growth rate is 8.0%. New stock can be sold to the public at the current price, but a flotation cost of 4.5% would be incurred. What would be the cost of equity from new common stock?

19.57%

21.08%

21.70%

15.78%

14.05%