The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 5% per year. Callahan's common stock currently sells for $25.50 per share; its last dividend was $2.20; and it will pay a $2.31 dividend at the end of the current year. Using the DCF approach, what is its cost of common equity

Question

Dania Schwartz

Business

5 April, 17:08

The future earnings, dividends, and common stock price of Callahan Technologies Inc. are expected to grow 5% per year. Callahan's common stock currently sells for $25.50 per share; its last dividend was $2.20; and it will pay a $2.31 dividend at the end of the current year. Using the DCF approach, what is its cost of common equity

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Sherlyn · Answer 1

14.06%

Explanation:

The computation of the cost of common equity using the DCF method is shown below:

Cost of Common Equity = [Ending year dividend : Price per share] + growth rate

= [$2.31 : $25.50] + 0.05

= 14.06%

We simply applied the above formula by considering the ending year dividend, price and the growth rate so that the correct percentage could come