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11 June, 14:53

The current Stock price is P0 = $30.00; next year's expected dividend is $2.70 (D1 = $2.70); and the dividend is expected to grow at a constant rate of 8%. What is the firm's expected cost of retained equity (rs) ? (Careful!)

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  1. 11 June, 15:01
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    Cost of Equity = 17%

    Explanation:

    Current Stock Price = Expected Dividend / (Cost of Equity - growth rate)

    30 = 2.70 / (Cost of Equity - 8%)

    Cost of Equity = 17%
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