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Judy's Boutique just paid an annual dividend of $3.73 on its common stock. The firm increases its dividend by 3.40 percent annually. What is the company's cost of equity if the current stock price is $43.96 per share

Respuesta :

Answer:

cost of equity = 12.16 %

Explanation:

given data

annual dividend of $3.73

increases dividend = 3.40 percent annually

stock price = $43.96 per share

to find out

What is the company's cost of equity

solution

we will use here Gordon model for compute company's cost of equity that is

market value = [tex]\frac{dividend* ( 1+growth\ rate)}{cost\ of\ equity - Growth\ rate}[/tex]         ........................1

put here value we get

43.96 = [tex]\frac{3.73* ( 1+0.034)}{cost\ of\ equity - 0.034}[/tex]

solve it we get

cost of equity =  0.121735

cost of equity = 12.16 %

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