Hartford Enterprises just paid an annual dividend of $1.56 per share. This divid

Question

Hartford Enterprises just paid an annual dividend of $1.56 per share. This dividend is expected to increase by 3% annually. Currently, the firm has a beta of 1.13 and a stock price of $28 a share. The risk-free rate is 3% and the market rate of return is 10.5%. What is your best estimate of Hartford's cost of equity? Answer a. 8.74% b. 9.72% c. 9.38% d. 10.11% e. 11.48% Hartford Enterprises just paid an annual dividend of $1.56 per share. This dividend is expected to increase by 3% annually. Currently, the firm has a beta of 1.13 and a stock price of $28 a share. The risk-free rate is 3% and the market rate of return is 10.5%. What is your best estimate of Hartford's cost of equity? Hartford Enterprises just paid an annual dividend of $1.56 per share. This dividend is expected to increase by 3% annually. Currently, the firm has a beta of 1.13 and a stock price of $28 a share. The risk-free rate is 3% and the market rate of return is 10.5%. What is your best estimate of Hartford's cost of equity? 8.74% 9.72% 9.38% 10.11% 11.48% a. 8.74% b. 9.72% c. 9.38% d. 10.11% e. 11.48%

Explanation / Answer

Answer is (d) 10.11%

P= D1/(Ke-g)

28= 1.56x1.03/(Ke-.03)

Ke= 8.7386%

Ke= Rf+beta(Rm-Rf)

Ke= 3+ 1.13(10.5-3)

Ke= 11.475%

Average of the above two= ( 8.7386+11.475)/2= 10.11%

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