9 )Fastest Company’s common shares are currently trading for $30. It is expected

Question

9 )Fastest Company’s common shares are currently
trading for $30. It is expected that Fastest Company
will pay an annual common share dividend of $2
next year. It is also expected that the dividend will
grow at a rate of 5 percent each year in perpetuity.
Based on the constant growth dividend discount
model, what is Fastest Company’s cost of common
equity?

10)How would your answer in question 9 change if the

dividend was expected to be $1.80 and the perpetual
growth of the dividend 4 percent?

answer question number 10

Explanation / Answer

9. coct of equity = D1 / Po + g

= 2 / 30 + 0.05

= 0.066+0.05

= 0.116 or 11.6%

10. cost of equity = 1.8 / 30 + 0.04

= 0.06 + 0.04

= 0.1 or 10%.

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