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The Drogon Co. just issued a dividend of $3.05 per share on its common stock. The company is expected to maintain a constant 6.3 percent growth rate in its dividends indefinitely. If the stock sells for $61 a share, what is the company’s cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Respuesta :

Ritmeks

Answer:

11.62%

Explanation:

Drogo corporation issued a dividend of $3.05 per share

The growth rate is 6.3%

= 6.3/100

= 0.063

The stock is sold at a price of $61 per share

The first step is to calculate the estimated dividend for the next year

= $3.05×(1+0.063)

= $3.05×(1.063)

= $3.24215

Therefore, the company's cost of equity can be calculated as follows

Po= Div1/r-g

61= 3.24215/r-0.063

r-0.063= 3.24215/61

r-0.063= 0.05315

r= 0.05315+0.063

r= 0.1162×100

r= 11.62%

Hence the company's cost of equity is 11.62%

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