Question

Asked Nov 7, 2019

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Gremlin Industries will pay a dividend of $1.65 per share this year. It is expected that this dividend will grow by 5% per year each year in the future. The current price of Gremlin's stock is $22.20 per share. What is Gremlin's equity cost of capital?

Step 1

In the question, the value of the dividend to be paid, the growth rate and the stock price are given. We can determine the value of the cost of capital using the formula below:

Step 2

Step 3

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