Question

Countess Corp. is expected to pay an annual dividend of $4.81 on its common stock in one year. The current stock price is $75.67 per share. The company announced that it will increase its dividend by 3.80 percent annually. What is the company's cost of equity

Answer 1

10.40 %

Step-by-step explanation:

Use the Dividend Growth Model to calculate the Cost of Equity since the information provided allows for this method.

Cost of equity = Expected Dividend / Market Price + Growth rate

therefore,

Cost of equity = ($4.81 x 1.038) / $75.67 + 3.80

= 10.40 %