Your company sells it's stock for $65/share

Finance Dec 26, 2020

Your company sells it's stock for $65/share. It also just issued a dividend of $3,50 per share on its common stock You expect to maintain a constant 2.5% growth rate in its dividends indefinitely What is the company's cost of equity? (Do not round intermediate calculations and enter your answer os o percent rounded to 2 decimal places, eg, 12.34.) 322 Cost of equilty %

Expert Solution

Sol:

Stock price (P) = $65 per share

Dividend (D0) = 3.50

Growth rate = 2.5%

D1 = D0 + G = 3.5 + 2.5% = $3.5875

Cost of Equity = (D1 / P) + G

Cost of Equity = (3.5875 / 65) + 2.50%

Cost of Equity = 0.055192 + 0.025

Cost of Equity = 0.080192 or 8.02%

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