fin 1-2

| March 14, 2016

Darkon Inc.’s perpetual preferred stock sells for $86.50 per share, and it pays an $8.30 annual dividend. Assuming zero flotation costs, what is the company’s cost of preferred stock for use in calculating the WACC?

Assume that you are a consultant to Tambor Inc., and you have been provided with the following data: D1 = $0.80; P0 = $27.50; and g = 9.00% (constant). What is the cost of equity from retained earnings based on the DCF approach?

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