The Muse Co just issued a dividend of 265 per share on its c

The Muse Co. just issued a dividend of $2.65 per share on its common stock. The company is expected to maintain a constant 5.50 percent growth rate in its dividends indefinitely.

If the stock sells for $53 a share, what is the company

Solution

Hi,

Please find the detailed answer as follows;

Cost of Equity = D1/Current Stock Price + Growth Rate = 2.65*(1+5.50%)/53 + 5.50% = 10.78%

Answer is 10.78%.

Thanks.