TLS just paid a dividend of $3.5 and expects these dividends to grow at 9% a year. The price of TLS is $100 per share. What is TLS' cost of equity capital?

Question

Quizplus · Accepted Answer

The cost of equity capital can be calculated using the dividend discount model as follows:

Cost of equity = (Dividend / Price) + Growth rate

= (3.5 / 100) + 0.09

= 0.035 + 0.09

= 0.125 or 12.5%

Therefore, the correct choice is B.

TLS Just Paid a Dividend of $3