Question

Gremlin Industries will pay a dividend of $ 1.70 per share this year. It is expected that this dividend will grow by 7​% per year each year in the future. The current price of​ Gremlin's stock is $ 22.50 per share. What is​ Gremlin's equity cost of​ capital?

Answer 1

Gremlin's equity cost of​ capital is 14.56%

Step-by-step explanation:

Gremlin's equity cost of​ capital = (D1 / P0) + g

= ($1.70/$22.50) + 0.07

= 0.1456 or 14.56%

Therefore, Gremlin's equity cost of​ capital is 14.56%