HighGrowth Company has a stock price of $22. The firm will pay a dividend next y
ID: 2796037 • Letter: H
Question
HighGrowth Company has a stock price of $22. The firm will pay a dividend next year of $1.14, and its dividend is expected to grow at a rate of 3.8% per year thereafter. What is your estimate of HighGrowth's cost of equity capital?
HighGrowth Company has a stock price of $22. The firm will pay a dividend next year of $1.14, and its dividend is expected to grow at a rate of 3.8% per year thereafter. What is your estimate of HighGrowth's cost of equity capital? The required return (cost of capital) of levered equity is % (Round to one decimal place.Explanation / Answer
cost of equity capital=(Dividend for next period/Current price)+Growth rate
=(1.14/22)+0.038
which is equal to
=9%(Approx)