Slow 'n Steady, Inc., has a stock price of $ 34 , will pay a dividend next year of $ 3.10 , and has expected dividend growth of 1.8 % per year. What is your estimate of Slow 'n Steady's cost of equity capital?

10.92%

Explanation:

The formula and the computation of the estimated cost of equity capital is shown below:

Stock price = Next year dividend : (cost of equity - expected dividend growth rate)

We assume the cost of equity be X

$34 = $3.10 : (cost of equity - 1.8%)

$34 X - $34 * 1.8X = $3.10

After solving this,

The cost of equity would be 10.92%