As the Assistant to the CFO of Johnstone Inc

question 27

Multiple Choice

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 = $0.80; P₀ = $22.50; and g = 8.00% (constant) .Based on the DCF approach,what is the cost of common from reinvested earnings?

• A) 10.69%
• B) 11.25%
• C) 11.84%
• D) 12.43%
• E) 13.05%

---

Definitions:

Capital Flight

A large and sudden reduction in the investment of assets in a country, often due to political or economic instability.

Exchange Rate

The worth of one currency when converted to another.

Interest Rate

The rate at which a borrower pays interest for the money borrowed from a lender.

Loanable Funds

The total funds available for borrowing in the economy, coming from savings, that are used for investments and consumption.