Question

for $32.45 per share, and the firm expects its per-share dividend to be $2.35 in one year. Analysts project the firm’s growth rate to be constant at 5.72%. Estimating the cost of equity using the discounted cash flow (or dividend growth) approach, what is Pierce’s cost of internal equity?

Answer 1

Answer:

Cost of equity will be 12.96 %

Explanation:

We have given current price of the stock = $32.45

Expected dividend $D_1= 2.35$ in one year

Growth rate $g=5.72%=0.0572$

We have to find the cost of equity

Cost of equity is given by

Cost of equity $=\frac{expected\ dividend}{current\ price\ of\ the \ stock}+growth\ rate=\frac{2.35}{32.45}+0.0572=0.1296$ = 12.96 %