1. The Edward Company is expected to pay a dividend of D1 = $3.00 per share at the end of the year, and that dividend is expected to grow at a constant rate of 5.00% per year in the future. The company's beta is 1.15, the market risk premium is 5.50%, and the risk-free rate is 4.00%. What is the company's current stock price?

a. $18.76

b. $30.93

c. $31.62

d. $37.56

e. $56.34

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2. Kimona Company hired you as a consultant to help estimate its cost of common equity. You have obtained the following data: D0 = $0.85; P0 = $20.00; and g = 5.00% (constant). The CEO thinks, however, that the stock price is temporarily depressed, and that it will soon rise to $40.00. Based on the DCF approach, by how much would the cost of common equity from retained earnings change if the stock price changes as the CEO expects?

a. -2.43%

b. -2.23%

c. -1.73%

d. -2.68%

e. -1.23%