Question

for $32.45 per share, and the firm expects its per-share dividend to be $2.35 in one year. Analysts project the firm’s growth rate to be constant at 5.72%. Estimating the cost of equity using the discounted cash flow (or dividend growth) approach, what is Pierce’s cost of internal equity?

Answer 1

Cost of equity will be 12.96 %

Step-by-step explanation:

We have given current price of the stock = $32.45

Expected dividend
`D_1=$2.35` in one year

Growth rate
`g=5.72%=0.0572`

We have to find the cost of equity

Cost of equity is given by

Cost of equity
`=(expected\ dividend)/(current\ price\ of\ the \ stock)+growth\ rate=(2.35)/(32.45)+0.0572=0.1296` = 12.96 %