Bouchard and Company Hired You as a Consultant to Help

question 84

Multiple Choice

Bouchard and Company hired you as a consultant to help estimate its cost of capital. You have obtained the following data: D0 = $0.85; P0 = $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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