Use the following data to answer Questions 19 through 21:

Faye Harlan, CFA, is estimating the cost of common equity for Cyrene Corporation.

She prepares the following data for Cyrene:

Price per share = $50.

Expected dividend per share = $3.

Expected retention ratio (RR) = 30%.

Expected return on equity = 20%.

Beta = 0.89.

Yield to maturity on outstanding debt = 10%.

The expected market rate of return is 12% and the risk-free rate is 3%.

The dividend is expected to grow at some constant rate g, where g = ROE*RR.

The firms target capital structure consists of 40% debt and 60% equity.

The firms marginal tax rate is 40%.

19. Based on these data, Harlan determines the Cyrenes cost of common equity is 14%. Harlan most likely arrived at this estimate by using the: *

A. Dividend discounted model approach.

B. Capital asset pricing model approach.

C. Bond yield plus risk premium approach.

D. A and B. E. None of the above

20. The companys cost of equity using the dividend discounted model is: *

A. 11%

B. 12%

C. 14%

D. 10%

E. None of the above

21. The companys weighted average cost of capital (using the equity from CAPM) is closest to: *

A. 9.6%

B. 10.8%

C. 9.0%

D. 10.0%

E. None of the above