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13 July, 12:50

Question 28 chelsea fashions is expected to pay an annual dividend of $1.10 a share next year. the market price of the stock is $21.80 and the growth rate is 4.5 percent. what is the firm's cost of equity?

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  1. 13 July, 14:13
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    As per the dividend distribution model, the cost of equity = D1/P0 + g

    where D1 = next year's dividend = 1.10

    P0 = Current stock price = 21.80

    g = growth rate = 4.5% = 0.045

    Cost of equity = 1.10/21.80 + 0.045 = 0.095458 = 9.5458% = 9.55% (Rounded)
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