Question

Asked Apr 29, 2019

Countess Corp. is expected to pay an annual dividend of $3.97 on its common stock in one year. The current stock price is $68.04 per share. The company announced that it will increase its dividend by 3.20 percent annually. What is the company's cost of equity?

Step 1

Calculating the cost of equity using the formula of dividend discounting model. We have,

Current price of stock = Expected Dividend / (Cost of equity – Growth Rate)

Here,

Expected dividend = $ 3.97

Current price of stock = $ 68.04

Growth rate of dividend = 3.20 %

By substituting these value in the above fo...

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