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The last paid dividend is​ $4 for a share of common stock that is currently selling for​ $50. What is the cost of common equity if the​ long-term growth rate on dividends for the firm is expected to be​ 8%?

Respuesta :

Answer:

16.64%

Explanation:

The computation of the cost of common equity is shown below:

= (Current year dividend) ÷ (Current selling price of common stock) + Growth rate

where,  

Current year dividend

= $4 + $4 × 8%

= $4 + 0.32

= $4.32

The other items rate would remain same

Now put these values to the above formula  

So, the value would equal to

= ($4.32) ÷ (50) + 8%

= 8.64% + 8%

= 16.64%

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