Blakeslee machinery announced this morning that their annual dividend will be in
ID: 2763465 • Letter: B
Question
Blakeslee machinery announced this morning that their annual dividend will be increased to $2.10 a share and that future dividends will be lowered by 2 percent per year. The stock price after the announcement settled at $16 a share. What is the firm's cost of equity?A. 33% B. 9.33% C. 11.13% D. 13.33% E. 15.13%. Blakeslee machinery announced this morning that their annual dividend will be increased to $2.10 a share and that future dividends will be lowered by 2 percent per year. The stock price after the announcement settled at $16 a share. What is the firm's cost of equity?
A. 33% B. 9.33% C. 11.13% D. 13.33% E. 15.13%.
A. 33% B. 9.33% C. 11.13% D. 13.33% E. 15.13%.
Explanation / Answer
Dividend at year 1 $2.10 market Price = Dividend at year 1/ Costof equity- growth 16 = 2.10/x-.(-.02) x+.02= 2.10/16 x+.02= 0.13125 x = .13125-.02 X = 11.13% Cost of equity is 11.13% The correct option is C. 11.13%
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