Ridge Company issues $10,000,000 10-year, 9% bonds on 3/1/17 at 97 plus accrued interest. The bonds are dated January 1, 2010, a
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Answer: 13%
Explanation: The cost of equity can be defined as the return a company pays to its shareholders in return of bearing the risk of investing in the company.
As per the given figures in the question we can say that cost of equity can be determined with the help of dividend discount model, which can be equated as follows :-
where,
ke = cost of equity
D1 = expected dividend
P0 = current price
G = growth rate
So, putting the values into equation we get :-
= 13%