The Muse Co. just issued a dividend of $2.95 per share on its common stock. The
ID: 2749871 • Letter: T
Question
The Muse Co. just issued a dividend of $2.95 per share on its common stock. The company is expected to maintain a constant 6.10 percent growth rate in its dividends indefinitely.
If the stock sells for $59 a share, what is the company’s cost of equity? (Round your answer to 2 decimal places. (e.g., 32.16))
Cost of Equity= %
The Muse Co. just issued a dividend of $2.95 per share on its common stock. The company is expected to maintain a constant 6.10 percent growth rate in its dividends indefinitely.
Explanation / Answer
Cost of equity, ke = (Current dividend x (1 + Dividend growth rate) / Stock price) + Dividend growth rate
= [$2.95 x 1.061 / $59] + 0.061
= 0.05305 + 0.061
= 0.1141
= 11.41%