Teall development company hired you as a consultant to them estimate its cost of capital. you have been provided with the following data: d1 = $1.45; p0 = $19.00; and g = 6.50% (constant). based on the dcf approach, what is the cost of equity from retained earnings?

14.13%

Explanation:

DCF formula for finding the cost of equity from retained earnings is as follows;

r =

D1 = next year's dividend= $1.45

P0= Current stock price  = $19

g = growth rate of the dividends which is constant in this case indefinitely= 6.50%

Plug in the numbers to the above DCF formula to find r;

r =

Therefore, as a percentage, the cost of equity from retained earnings is 14.13%