Question

Slow​ 'n Steady,​ Inc., has a stock price of $ 34​, will pay a dividend next year of $ 3.10​, and has expected dividend growth of 1.8 % per year. What is your estimate of Slow​ 'n Steady's cost of equity​ capital?

Answer 1

10.92%

Step-by-step explanation:

The formula and the computation of the estimated cost of equity capital is shown below:

Stock price = Next year dividend ÷ (cost of equity - expected dividend growth rate)

We assume the cost of equity be X

$34 = $3.10 ÷ (cost of equity - 1.8%)

$34 X - $34 × 1.8X = $3.10

After solving this,

The cost of equity would be 10.92%