Suppose In a Found Ltd. just issued a dividend of $2.14 per share on its common

Question

Suppose In a Found Ltd. just issued a dividend of $2.14 per share on its common stock. The company paid dividends of $1.80, $1.89, $1.96, and $2.07 per share in the last four years. If the stock currently sells for $60, what is your best estimate of the company's cost of equity capital using the arithmetic average growth rate in dividends? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Cost of equity = ______ %
What if you use the geometric average growth rate? (Do not round intermediate calculations and round your answer to 2 decimal places.)
Cost of equity = ______%

Explanation / Answer

P= D1/(Ke-g)

Ke= D1/P +g

Ke= 2.247/60 +.05= 8.75%

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