CORRECT ANSWER C. THE COST OF CAPITAL FOR HATCH’S RETAINED EARN...

136.

Correct answer c. The cost of capital for Hatch’s retained earnings is equal to the required

rate of return on the company’s common stock or 18.08% as calculated below using the

constant growth model.

Required rate of return = (Dividend next period ÷ Value) + Growth rate

= [($3 x 1.09) ÷ $36] + .09

= .0908 + .09

= 18.08%