Cullumber Wok Co. is expected to pay a dividend of $1.80 one year from today on its common shares. That dividend is expected to increase by 5.00 percent every year thereafter. If the price of Cullumber common stock is $20.00, what is the cost of its common equity capital?

A. Cost of common equity

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Question

Business

Reuben Mcguire

16 November, 11:17

Cullumber Wok Co. is expected to pay a dividend of $1.80 one year from today on its common shares. That dividend is expected to increase by 5.00 percent every year thereafter. If the price of Cullumber common stock is $20.00, what is the cost of its common equity capital?

A. Cost of common equity

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+5

Answers (1)

Know the Answer?

Alijah Flowers · Answer 1

14.00%

Explanation:

Given that,

Expected Dividend = $1.80

Expected Growth Rate of dividend = 5%

Price of Cullumber common stock = $20.00

Cost of Common Equity = (Expected Dividend : Current Price) + Growth Rate

= (1.80 : 20) + 5%

= 0.09 + 5%

= 14.00%

Therefore, the cost of its common equity capital is 14%.

Cullumber Wok Co. is expected to pay a dividend of $1.80 one year from today on its common shares. That dividend is expected to increase by 5.00 percent every year thereafter. If the price of Cullumber common stock is $20.00, what is the cost of its common equity capital?A. Cost of common equity%