A new common
stock issue that paid a $1.76 dividend last year. The firm’s dividends are
expected to...

Question

A new common
stock issue that paid a $1.76 dividend last year. The firm’s dividends are
expected to continue to grow at 6.7% per year forever. The price of the firm’s
common stock is now $27.36.
The cost of
capital from the common equity is%(round
to two decimal places).

Robert · Accepted Answer

Dividend last paid (D0) = $1.76 
Growth rate = 6.7% 
Price of common stock (P0) = $27.36
Cost of capital (Ke) = (D1/ P0) + Growth rate
D1 = D0 (1+growth rate) 
= $1.76 (1+6.7%) 
= $1.87
Ke = ($1.877/$27.36)+ 6.7% 
= 13.56%

A new common stock issue that paid a $1.76 dividend last year. The firm’s dividends are expected to continue to grow at 6.7% per year forever. The price of the firm’s common stock is now $27.36. The...

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