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10 May, 16:54

Judy's Boutique just paid an annual dividend of $3.31 on its common stock. The firm increases its dividend by 3.75 percent annually. What is the company's cost of equity if the current stock price is $42.28 per share

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Answers (2)
  1. 10 May, 17:31
    0
    Cost of equity = 11.87%

    Explanation:

    Cost of equity is defined as the amount that a business pays to its equity investors or shareholders as compensation for the risk of finding the business.

    Usually businesses may not have enough capital to run their operations properly in meeting organisational goals. So they seek for funding from investors, and these investors are compensated for giving the business capital.

    The formula for cost of equity is

    Cost of equity={ (Dividend * Growth rate) : Current stock price} + percentage increase in dividend)

    Cost of equity={ (3.31 * 1.0375) : 42.28} + 0.0375)

    Cost of equity = (3.434 : 42.28) + 0.0375 = 0.1187

    Cost of equity = 11.87%
  2. 10 May, 19:54
    0
    11.87%

    Explanation:

    Calculation for Judy's Boutique company's cost of equity if the current stock price is $42.28 per share

    Using this formula

    RE=[ (Annual dividend*dividend Increase percentage) / current stock price]+dividend increase percentage

    Let plug in the formula

    RE = [ ($3.31 * 1+.0375) / $42.28] +.0375

    RE=[ ($3.31*1.0375) / $42.28]+.0375

    RE = ($3.434125/$42.28) +.0375

    RE=0.0812233+.0375

    RE=0.1187*100

    RE=11.87%

    Therefore the company's cost of equity if the current stock price is $42.28 per share would be 11.87%
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