HighGrowth Company has a stock price of $22. The firm will pay a dividend next y

Question

HighGrowth Company has a stock price of $22. The firm will pay a dividend next year of $1.14, and its dividend is expected to grow at a rate of 3.8% per year thereafter. What is your estimate of HighGrowth's cost of equity capital?

HighGrowth Company has a stock price of $22. The firm will pay a dividend next year of $1.14, and its dividend is expected to grow at a rate of 3.8% per year thereafter. What is your estimate of HighGrowth's cost of equity capital? The required return (cost of capital) of levered equity is % (Round to one decimal place.

Explanation / Answer

cost of equity capital=(Dividend for next period/Current price)+Growth rate

=(1.14/22)+0.038

which is equal to

=9%(Approx)

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