Were Recently Hired by Garrett Design, Incto Estimate Its Cost

question 29

Multiple Choice

were recently hired by Garrett Design, Incto estimate its cost of common equity You obtained the following data: D1 = $1.75; P0 = $42.50; g = 7.00% (constant) ; and F = 5.00% What is the cost of equity raised by selling new common stock?

• A) 10.77%
• B) 11.33%
• C) 11.90%
• D) 12.50%
• E) 13.12%

---

Definitions:

Treasury Bonds

These are long-term, fixed-interest government debt securities with a maturity of more than ten years. They are considered safe investments because they are backed by the U.S. government.

Capital Gain/Loss

The increase or decrease in the value of an investment or real estate, calculated by the difference between the purchase price and the sale price.

Par Value

The face value of a bond or stock as stated by the issuer, which is the amount paid to the holder at maturity for bonds, or the nominal value of a share.

Semiannual Coupon Bond

A type of bond that pays interest to its holder twice a year at regular intervals.