Judy's Boutique just paid an annual dividend of $2.77 on its common stock. The firm increases its dividend by 3.50 percent annually. What is the company's cost of equity if the current stock price is $40.12 per share?

Question

Business

Maggie Walter

15 December, 02:52

Judy's Boutique just paid an annual dividend of $2.77 on its common stock. The firm increases its dividend by 3.50 percent annually. What is the company's cost of equity if the current stock price is $40.12 per share?

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Answers (1)

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Emmett · Answer 1

10.4%

Explanation:

The formula to calculate the cost of equity is:

Cost of equity = (DPS/MPS) + r

DPS = Dividend per share

MPS = Market price per share

r = Growth rate of Dividends

Cost of equity = (2.77/40.12) + 0.0350

Cost of equity=0.069+0.0350

Cost of equity=0.104→ 10.4%

The company's cost of equity if the current stock price is $40.12 per share is 10.4%.