The Absolute Zero Co. just issued a dividend of $3.00 per share on its common st
ID: 2749710 • Letter: T
Question
The Absolute Zero Co. just issued a dividend of $3.00 per share on its common stock. The company is expected to maintain a constant 6.2 percent growth rate in its dividends indefinitely.
If the stock sells for $60 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 $3.00 per share on its common stock. The company is expected to maintain a constant 6.2 percent growth rate in its dividends indefinitely.
Explanation / Answer
Cost of equity, re = D1÷Price+Growth rate
= $3×(1+6.2%)÷$60+6.2%
= 11.51%
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