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People Window Help Take a Test - Patrick Quigley Secure I https://www.mathxl.com/Student/Player Test.aspx?testid=172973966&centerwina;, FINC 300 (01): Fall 2017 Test: Exam 2 Submit Tes This Question: 3 pts 27 of 30 (4 complete) his Test 100 pts possi Question Help | (Related to Checkpoint 14.2) (Cost of common equity) Salte Corporation is issuing new common stock at a market price of $27.81. Dividends last year were $1.48 and are expected to grow at an annual rate of 5.2 percent forever. What is Salte's cost of common equity? The company's cost of common equity is Ma (Round to two decimal places.) Enter your answer in the answer box.

Explanation / Answer

Dividend growth model

P0 = D0 ( 1+g ) / ( Ke - g )

Ke - g = D0 ( 1+g ) / P0

Ke = [ D0 ( 1+g ) / P0 ] + g

= [ $ 1.48 ( 1.052 ) / $ 27.81 ] + 0.052

= [ $ 1.55696 / $ 27.81 ] + 0.052

= 5.60% + 5.20%

= 10.80%

Cost of Equity = 10.80%

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