Stock in Country Road Industries has a beta of 0.63. The market risk premium is

Question

Stock in Country Road Industries has a beta of 0.63. The market risk premium is 8.5 percent, and T-bills are currently yielding 5 percent. The company's most recent dividend was $1.7 per share, and dividends are expected to grow at a 3.5 percent annual rate indefinitely. If the stock sells for $33 per share, what is your best estimate of the company's cost of equity? (Do not round your intermediate calculations.)

Stock in Country Road Industries has a beta of 0.63. The market risk premium is 8.5 percent, and T-bills are currently yielding 5 percent. The company's most recent dividend was $1.7 per share, and dividends are expected to grow at a 3.5 percent annual rate indefinitely. If the stock sells for $33 per share, what is your best estimate of the company's cost of equity? (Do not round your intermediate calculations.)

Explanation / Answer

Cost of equity = next year dividend / stock price + growth rate = 1.7*(1+3.5%)/33 + 3.5% = 8.83%

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