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Vanyuwa [196]
3 years ago
10

Sweet Treats common stock is currently priced at $36.72 a share. The company just paid $2.18 per share as its annual dividend. T

he dividends have been increasing by 2.2 percent annually and are expected to continue doing the same. What is the cost of equity
Business
1 answer:
Phantasy [73]3 years ago
4 0

Answer:

Cost of equity= 8.0%

Explanation:

<em>Cost of equity can be ascertained using the dividend valuation  model. The model states that the price of a stock is the present value of future dividends discounted at the required rate of return.</em>

Cost of equity (Ke) =( Do( 1+g)/P )  + g

g - 2.2%, P - 36.72, D - 2.18

Ke = (2.18 ×(1+0.022)) /38.72  +  0.022 )  ×  100

= 0.07954 × 100

= 8.0%

 Cost of equity = 8.0%

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