A company\'s last dividend was $1.50 per share the dividends were expected to gr

Question

A company's last dividend was $1.50 per share the dividends were expected to grow at a constant rate of 5% per year . The price of the company's common stock today is $28 per share the company marginal tax rate is 35% what is the cost of equity approximately A company's last dividend was $1.50 per share the dividends were expected to grow at a constant rate of 5% per year . The price of the company's common stock today is $28 per share the company marginal tax rate is 35% what is the cost of equity approximately

Explanation / Answer

Using dividend growth model,

Cost of equity (r) = D0 x (1 + g) / P + g = 1.50 x (1 + 5%) / 28 + 5% = 10.625%

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