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sergiy2304 [10]
3 years ago
6

Tim's Tools just issued a dividend of $2.22 per share on its common stock. The company is expected to maintain a constant 2.8 pe

rcent growth rate in its dividends indefinitely. If the stock sells for $19 a share, what is the company's cost of equity?
Business
1 answer:
LekaFEV [45]3 years ago
4 0

Answer:

expected return = 12.03%

Explanation:

using the dividends growth model we can calculate the required return

\frac{divends}{return-growth} = Intrinsic \: Value

2.22 x 1.03 = 2.2866

We must remember that the gordel model is used with next year dividends

2.2866(return - 0.023) = 19

2.2866/19      +0.023 = return

return = 12.03%

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