Slow 'n Steady, Inc., has a stock price of $ 34, will pay a dividend next year of $ 3.10, and has expected dividend growth o

Question

2 years ago

6

f 1.8 % per year. What is your estimate of Slow 'n Steady's cost of equity capital?

1 answer:

erica [24] · Answer 1 · 2022-08-10T12:08:01+03:00

Answer:

10.92%

Explanation:

The formula and the computation of the estimated cost of equity capital is shown below:

Stock price = Next year dividend ÷ (cost of equity - expected dividend growth rate)

We assume the cost of equity be X

$34 = $3.10 ÷ (cost of equity - 1.8%)

$34 X - $34 × 1.8X = $3.10

After solving this,

The cost of equity would be 10.92%

Slow​ 'n Steady,​ Inc., has a stock price of $ 34​, will pay a dividend next year of $ 3.10​, and has expected dividend growth o