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23 January, 04:57

Cullumber Wok Co. is expected to pay a dividend of $1.80 one year from today on its common shares. That dividend is expected to increase by 5.00 percent every year thereafter. If the price of Cullumber common stock is $20.00, what is the cost of its common equity capital?

A. Cost of common equity

%

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Answers (1)
  1. 23 January, 06:04
    0
    14.00%

    Explanation:

    Given that,

    Expected Dividend = $1.80

    Expected Growth Rate of dividend = 5%

    Price of Cullumber common stock = $20.00

    Cost of Common Equity = (Expected Dividend : Current Price) + Growth Rate

    = (1.80 : 20) + 5%

    = 0.09 + 5%

    = 14.00%

    Therefore, the cost of its common equity capital is 14%.
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