Rattle me Bones, Inc.'s common stock is currently selling for $66.25 per share. You expect the next dividend to be $5.30 per share. If the firm has a dividend growth rate of 4% that is expected to remain constant indefinitely, what is the firm's cost of equity?

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Quizplus · Accepted Answer

The cost of equity is calculated using the dividend growth model:Cost of equity = (Dividend / Price) + Dividend growth rate= (5.30 / 66.25) + 0.04= 0.123, or 12.3%

Rattle Me Bones, Inc