The Lo Tech Co. just issued a dividend of $2.60 per share on its common stock. T

Question

The Lo Tech Co. just issued a dividend of $2.60 per share on its common stock. The company is expected to maintain a constant 4 percent growth rate in its dividends indefinitely.

If the stock sells for $43.40 a share, what is the company’s cost of equity? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

If the stock sells for $43.40 a share, what is the company’s cost of equity? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Cost of Equity=( Next Year's Dividend/Current Market Price)+ Growth rate of dividends                                  =(2.60*(1.04)/43.40)+0.04 0.102304 ie. 10.23%

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