Answer:
Cost of equity = 10.7%
Explanation:
According to the dividend valuation, the value of a stock is the present value of expected future dividends discounted at the required rate of return.
The model can me modified to determined the cost of equity as follows:
Cost of equity = D/P + g
d- dividend payable next period, p- price of stock ,, - g- growth rate
D- 4.5%, p- $2.48 , g -4.5%
Cost of equity = (2.48 /39.85) + 0.045
= 10.7%
