The Absolute Zero Co. just issued a dividend of $3.30 per share on its common st

Question

The Absolute Zero Co. just issued a dividend of $3.30 per share on its common stock. The company is expected to maintain a constant 6.8 percent growth rate in its dividends indefinitely.

If the stock sells for $66 a share, what is the company’s cost of equity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

The Absolute Zero Co. just issued a dividend of $3.30 per share on its common stock. The company is expected to maintain a constant 6.8 percent growth rate in its dividends indefinitely.

Explanation / Answer

price= dividend/cost of equity

66=D0*(1+g)/(k-g)

66=3.3*(1+6.8%)/(k-6.8%)

k=12.14%

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