The Down and Out Co. just issued a dividend of $2.96 per share on its common sto

Question

The Down and Out Co. just issued a dividend of $2.96 per share on its common stock. The company is expected to maintain a constant 7 percent growth rate in its dividends indefinitely. If the stock sells for $50 a share, what is the company's cost of equity? (Do not round your intermediate calculations.)

12.67%

12.92%

13.33%

6.47%

14%

The Down and Out Co. just issued a dividend of $2.96 per share on its common stock. The company is expected to maintain a constant 7 percent growth rate in its dividends indefinitely. If the stock sells for $50 a share, what is the company's cost of equity? (Do not round your intermediate calculations.)

Explanation / Answer

Cost of equity, re = D1÷Price+Growth rate

= $2.96×(1+7%)÷$50+7%

= 13.33%

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