Calculate WACC, then plot IOS and MCC schedules.

Step 1: Estimate the cost of equity

ks = + g = + 6% = 16.6%.

ke = + g = + 6%

= + 6% = 19.1%.

D0(1 + g)

P0

$2(1.06)

$20

D1

P0(1 - F)

$2(1.06)

$20(1 - 0.19)

$2.12

$16.2

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