  # 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?

Question

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?

check_circleExpert Solution
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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