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alexandr402 [8]
3 years ago
11

Countess Corp. is expected to pay an annual dividend of $5.29 on its common stock in one year. The current stock price is $79.83

per share.
The company announced that it will increase its dividend by 3.40 percent annually.

What is the company's cost of equity?
Business
1 answer:
Nostrana [21]3 years ago
7 0

Answer:

10.03%

Explanation:

Using the dividend discount formula, find the cost of equity; r

r = \frac{D1}{P0} +g

whereby,

D1 = Next year's dividend = 5.29

P0 = Current price of the stock = 79.83

g = growth rate of dividends = 3.40% or 0.034 as a decimal

Next, plug in the numbers to the formula above;

r = \frac{5.29}{79.83} +0.034\\ \\ r =0.06627 + 0.034\\ \\ =0.10027

As a percentage, r = 10.03%

Therefore, the company's cost of equity is 10.03%

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