QUESTIONS 69 THROUGH 78 RELATE TO CORPORATE FINANCE

75. An analyst gathers the following information about a company and the market:

Current market price per share of common stock €32.00

Most recent dividend per share paid on common stock €2.40

Expected dividend payout rate 40%

Expected return on equity (ROE) 15%

Beta for the common stock 1.5

Expected return on the market portfolio 12%

Risk-free rate of return 4%

Using the dividend discount model approach, the cost of common equity for the

company is closest to:

A. 16.0%.

B. 16.5%.

C. 17.2%.