Question

The Shoe Outlet has paid annual dividends of $.58, $.66, $.72, and $.75 per share over the last four years, respectively. The stock is currently selling for $10.08 a share. What is the cost of equity? Multiple Choice 17.13 percent 18.74 percent 11.79 percent 19.53 percent 10.38 percent

Answer 1

Answer:

A). 17.13 %

Explanation:

Given that,

Annual Dividend for the first year = $.58,

Annual Dividend for the second year = $.66

Annual Dividend for the third year = $.72

Annual Dividend for the fourth year = $.75

The current price per share = $10.08

To find;

The cost of equity = ?

Procedure:

(0.66 - 0.58)/0.58 = 0.137931034

(0.72 - 0.66)/0.66 = 0. 0909090909

(0.75 - 0.72)/0.72 = 0.0416666667

g = (0.137931034 + 0. 0909090909 + 0.0416666667)/3

= 0.0901689305

$R_{e}$ = {(0.75 * 1.0901689305)/10.08} + 0.0901689305

= 0.17128269

∵ 17.13% is the cost of equity.