Question

Neal Enterprises common stock is currently priced at $36.80 a share. The company is expected to pay $1.20 per share next month as their annual dividend. The dividends have been increasing by 2 percent annually and are expected to continue doing so. What is the cost of equity for Neal Enterprises

Answer 1

The cost of equity for Neal Enterprises is 5%

Step-by-step explanation:

In order to calculate the cost of equity for Neal Enterprises we would have to make the following calculation:

cost of equity=((Do(1+g)/Po)+g

According to givn data we have the following:

Do=$1.20

Po=$36.80

g=2%

cost of equity=((1.20(1+0.02)/36.80-1.20)+0.02

cost of equity=((1.20(1+0.02)/35.60)+0.02

cost of equity=0.05

The cost of equity for Neal Enterprises is 5%