1. A firm pays a current dividend of $1, which is expected to grow at a rate of 3% indefinitely. If the current value of the firm’s shares is $103, what is the required return applicable to the investment based on the constant-growth dividend discount model (DDM)?
2. Teall Development Company hired you as a consultant to help them estimate its cost of capital. You have been provided with the following data: D1 = $1.45; P0 = $22.50; FC=8% and g = 6.50% (constant). Based on the DCF approach, what is the cost of issuing common stock?