You are a finance intern at chambers and sons and they have asked you to estimate the company's cost of common equity. you obtained the following data: d1 = $1.25; p0 = $27.50; gl = 5.00% (constant); and f = 6.00%. what is the cost of equity raised by selling new common stock?

D1 = $ 1.25

P0 = $ 27.50

g = 5 % = 0.05

F = 6 % = 0.06

Cost of equity, re = D1/ {P0 x (1- F)} + g

                             = $ 1.25 / {$ 27.50 x (1- 0.06)} + 0.05

                             = $ 1.25 / ($ 27.50 x 0.94) + 0.05

                             = $ 1.25 / 25.85 + 0.05

                           = 0.048356 + 0.05

                           = 0.098356 or 9.84 %

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