Consider the following information for Company ABC:
Current Price of Stock $25.5 -
Expected dividend in 1 Year $1.00
Growth rate 8.0%
Beta 1.2 -
Risk Free Rate 4.5%
Calculate this company's cost of retained earnings using the Discounted Cash Flow (DCF) method.
Click on the arrows to vote for the correct answer
A. B. C. D. E.D
The DCF method for estimating the cost of retained earnings states: Cost of Retained Earnings = (Dividend for period 1 / Current Price) + Growth Rate. In this case the estimated Cost of Retained Earnings = (1 / 25.5) + 8.0% = 3.92 + 8.00 = 11.92%