1. Assume that Burger Queen Inc. hired you as a consultant to help estimate its cost of capital. You have obtained the following data: D0 = $0.80; P0 = $26.00; and g = 6.00% (constant). Based on the DCF approach, what is the cost of equity from retained earnings?

9.26%

9.14%

8.87%

8.54%

8.48%

2. Perfect Confectionery Co. expects to earn $3.20 per share during the current year, its expected dividend payout ratio (i.e., the proportion of earnings paid out as dividend) is 60%, its expected constant dividend growth rate is 5.0%, and its common stock currently sells for $30.00 per share. New stock can be sold to the public at the current price, but a flotation cost of 10% would be incurred. What would be the cost of equity from new common stock?

a) 10.73%

b) 11.29%

c) 11.82%

d) 12.11%

e) 12.67%