Question

you are analyzing a common stock whose most recent dividend is $4.59 per share and its sustainable growth rate of dividends is 3.5 percent. its current stock price is $97.36 per share. based on the constant growth dividend valuation model, what is this company's cost of equity? report your answ

Answer 1

The cost of equity for this company is 7.2%. This is the required rate of return that investors expect to receive on the company's common stock.

How do you calculate the cost of equity?

To calculate the cost of equity using the constant growth dividend valuation model, we need to know the stock's most recent dividend per share, its sustainable growth rate of dividends, and its current stock price.

Given the information provided, the most recent dividend per share is $4.59, the sustainable growth rate of dividends is 3.5%, and the current stock price is $97.36.

Using these values, the cost of equity can be calculated as follows:

cost of equity = (dividend per share / stock price) + sustainable growth rate of dividends

= ($4.59 / $97.36) + 3.5%

= 0.0470 + 3.5%

= 7.2%

Therefore, the cost of equity for this company is 7.2%. This is the required rate of return that investors expect to receive on the company's common stock.

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