Johnson Enterprises's stock is currently selling for $25.67 per share, and the firm expects its per-share dividend to be $2.35 in one year. Analysts project the firm's growth rate to be constant at 5.72%. Estimating the cost of equity using the discounted cash flow (or dividend growth) approach, what is Johnson's cost of internal equity?

a. 14.87%

b. 14.13%

c. 20.07%

d. 15.61%

Question

Leonidas Sawyer

Business

15 November, 18:14

Johnson Enterprises's stock is currently selling for $25.67 per share, and the firm expects its per-share dividend to be $2.35 in one year. Analysts project the firm's growth rate to be constant at 5.72%. Estimating the cost of equity using the discounted cash flow (or dividend growth) approach, what is Johnson's cost of internal equity?

a. 14.87%

b. 14.13%

c. 20.07%

d. 15.61%

+1

Answers (1)

Know the Answer?

Summer Stephens · Answer 1

a) Cost of equity = 14.78%

Explanation:

Cost of equity can be ascertained using the dividend valuation model. The model states that the price of a stock is the present

Cost of equity (Ke) = (Do (1+g) / P) + g

Ke - cost of equity, g - growth rate, p - price of the stock

Cost of equity

= 2.35/25.67 + 0.0572

= 0.148746552 * 100

= 14.87%

Cost of equity = 14.87%