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S. Bouchard and Company hired you as a consultant to help estimate its cost of capital. You have obtained the following data: D_0 = $0.85;
S. Bouchard and Company hired you as a consultant to help estimate its cost of capital. You have obtained the following data: D_0 = $0.85; P_0 = $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. Based on the DCF approach, by how much would the cost of equity 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% e. -2.23%
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