Question

Top Knot, Inc. is expected to pay a $2.50 per share dividend next year. The dividends are anticipated to maintain a 5% growth rate forever. If the stock currently sells for $48 per share, what is the cost of equity

Answer 1

10.21

Step-by-step explanation:

Dividend= 2.50

The growth rate is 5%

The current stock price is $48

Therefore the cost of equity can be calculated as follows

= 2.50/48 +5/100

= 0.0521 + 0.05

= 0.1021×100

= 10.21

Hence the cost of equity is 10.21