Trahan Lumber Company hired you to help estimate its cost of capital. You obtain

Question

1. Trahan Lumber Company hired you to help estimate its cost of capital. You obtained the following data: D1 = $1.25; P0 = $27.50; g = 5.00% (constant); and F = 6.00%. What is the cost of equity raised by selling new common stock?

1. Trahan Lumber Company hired you to help estimate its cost of capital. You obtained the following data: D1 = $1.25; P0 = $27.50; g = 5.00% (constant); and F = 6.00%. What is the cost of equity raised by selling new common stock?

Explanation / Answer

Hi,

Please find the answer as follows:

Cost of equity = 1.25/27.50*(1-.06) + .05 = 9.84%

Thanks.

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